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  • Business Law Section Blog
    November 22, 2021

    Continuing Education Requirements on the Horizon for Investment Adviser Representatives

    To offer securities or investment advice, broker-dealer agents have long been subject to continuing education requirements, but investment adviser representatives are not. That could change in 2022 or 2023. Deborah Fabritz discusses proposed educational requirements for investment adviser representatives.

    Deborah J. Fabritz

    Wisconsin is currently on track to adopt new continuing education requirements for investment adviser representatives (IARs).

    To offer securities or investment advice, a financial professional must be registered with the Wisconsin Division of Securities as a representative of a securities broker-dealer or investment adviser, or both.

    Broker-dealer agents have long been subject to continuing education requirements. IARs are not – making them one of the few professionals not required to complete continuing education (CE), unless done as a condition of some other licensing credential (e.g., insurance agent) or professional designation (e.g., certified financial planner).

    Addressing the Gap

    Wisconsin is a member of the North American Securities Administrators Association (NASAA), the national organization of state securities regulators, which became interested in addressing this gap in CE requirements.

    Deborah Fabritz Deborah Fabritz, DePaul 1985, is with the Wisconsin Department Financial Institutions Division of Securities, where she serves as director of Professional Registration & Compliance.

    In November 2020, NASAA’s membership voted to adopt a model rule requiring continuing education for IARs. In developing the model rule, NASAA’s IAR Continuing Education Committee (of which I am a member) conducted substantial outreach efforts and considered comments from both regulators and the securities industry.

    The Division of Securities has statutory authorization to promulgate administrative rules that require continuing education for IARs to maintain their registration with the division.1 The proposed rules in Wisconsin will create DFI-Sec 11 of the administrative code, specifically relating to the new continuing education requirements for IARs.

    Adoption in 2022 or 2023

    The scope statement for the new rules was approved by Gov. Evers on Feb. 19, 2021, and published in Administrative Register No. 783A1 on March 1, 2021. The current legislative materials, including the proposed rule text, can be found on the Wisconsin State Legislature website.

    Wisconsin’s proposed rules incorporate the substance of the NASAA CE model rule, while making certain adjustments to comply with legislative drafting conventions. The anticipated effective date is Jan. 1, 2022, so long as the rules are adopted prior to the end of this year.

    Otherwise, if adopted in 2022, the rules will be effective for 2023 (so there is a full calendar year for compliance).

    Wisconsin’s Proposed Rules

    IARs play a significant role in the financial lives of their clients by providing advice on important financial decisions such as investing for retirement. The focus of the new continuing education program will be to promote regulatory compliance, while also helping IARs better serve their clients by remaining knowledgeable of current regulatory requirements and best practices. The program will foster public confidence in registered financial professionals as a whole.

    Every IAR registered in Wisconsin will be subject to the new continuing education requirements. There are currently more than 10,800 IARs registered with the Wisconsin Division of Securities, including both those associated with state-registered investment advisers and those with federal covered investment advisers registered with the SEC.

    Consistent with the NASAA CE model rule, Wisconsin’s proposed CE rules require a total of 12 credits per year, including 6 credits received from courses about products and practices, and 6 credits for courses covering ethics and professional responsibility.

    The products and practices component is designed to ensure ongoing knowledge and competency related to investment products, strategies, standards, and compliance practices relevant to the investment advisory industry.

    The ethics and professional responsibility component will provide knowledge and competency related to an IAR’s duties and obligations to his or her clients including but not limited to the fiduciary duty owed to clients.

    Tracking the Continuing Education Requirements

    Since this is a national program, and many IARs are registered in multiple states, credits will be reported to and tracked by the Financial Industry Regulatory Authority (FINRA) as NASAA’s CE reporting database. This will enable Wisconsin and the securities regulators of other states, as well as the IARs themselves, to easily monitor CE compliance.

    IARs who are dually registered as broker-dealer agents and who complete their FINRA regulatory element CE will receive credit for the products and practices component, and will be in compliance with the IAR CE program by obtaining 6 credits of ethics and professional responsibility.

    IARs with professional designations are expected to use credits from courses taken to maintain their professional designations to also meet the IAR CE requirements, so long as the course is approved for purposes of IAR continuing education.

    Inactive Status

    If an IAR does not complete CE during the calendar year, the IAR will be able to renew their registration for the following year, but will receive a registration status in the Central Registration Database (CRD) indicating the CE deficiency. IARs remain registered and can continue to conduct business with a CE deficient status, but are on notice that if CE is not completed, they will be precluded from renewing their registration at the end of the year in which they became CE deficient. Once an IAR obtains sufficient CE credits, the IAR’s registration status will automatically revert to fully “Approved.”

    For example, if Wisconsin’s CE rules are effective as of Jan. 1, 2022, an IAR will have the full year to obtain the required 12 CE credits. An IAR who is CE deficient can renew for 2023 with a registration status reflecting the CE deficiency. If in 2023 the IAR catches up and completes the coursework to receive 12 credits for 2022, the IAR’s registration status will be updated.​

    However, if the IAR does not complete CE for 2022, the IAR will not be able to renew for 2024, and will then have an inactive or unregistered status of “Failed to Renew.” CE credits will always be first applied to the prior year in which the IAR is CE deficient.

    Continuing Education Providers

    Anyone, including law firms, can offer and provide continuing education for IARs, so long as they are approved as a CE provider and the course is approved for the CE program. IARs are free to select approved courses that appeal to their interests.

    The CE providers will report the CE credits and roster of all IARs who completed a course.

    Prometric serves as the course management vendor for the IAR CE program and is currently accepting applications from CE providers.

    A Program Handbook was developed and recently updated to help potential providers understand and meet the requirements for acceptable IAR CE course material.

    The NASAA website has additional information including course provider application materials and FAQs. As providers are approved, they are listed on NASAA’s website. If you or your firm are interested in becoming a CE provider, please explore the information and materials on the website.

    Please feel free to contact me with any questions regarding the future IAR continuing education program.

    This article was originally published on the State Bar of Wisconsin’s Business Law Blog. Visit the State Bar sections or the Business Law Section webpages to learn more about the benefits of section membership.

    Endnote

    1 See Wis. Stat. § 551.411(8).






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    Disclaimer: Views presented in blog posts are those of the blog post authors, not necessarily those of the Section or the State Bar of Wisconsin. Due to the rapidly changing nature of law and our reliance on information provided by outside sources, the State Bar of Wisconsin makes no warranty or guarantee concerning the accuracy or completeness of this content.

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