The North American Securities Administrators Association (“NASAA”) recently announced an updated timeline for the implementation of its Model Rule on Investment Adviser Representative Continuing Education (“Model Rule”). Adopted on November 24, 2020, the Model Rule provides a framework for requiring investment adviser representatives registered with a state securities regulator to complete twelve hours of continuing education each calendar year. To read the Model Rule on Investment Adviser Representative Continuing Education, click here.
NASAA has contracted with Prometric, a third party vendor, to assist with administering the IAR CE program and intends to finalize standardized criteria for IAR CE content providers, instructors and individual CE courses in the first quarter of 2021. Once finalized, the IAR CE program criteria, requirements and application material are expected to be available by the end of the second quarter of 2021. IARs that are registered in states that have adopted the Model Rule must comply with the IAR CE requirements beginning in 2022.
Who must comply with the IAR CE requirements?
Investment adviser representatives must comply with the Investment Adviser Representative Continuing Education requirements adopted by the state(s) in which the IAR is registered. The requirement applies to every IAR registered in a state that adopts the Model Rule, including IARs associated with state registered investment adviser firms. It also covers IARs for SEC-registered investment advisers to the extent that those IARs are registered in a state that has adopted the Model Rule.
In the event an IAR is registered in more than one state, the IAR must comply with the requirements of each state, which may vary. However, the Model Rule provides that an IAR will be considered in compliance with the CE requirements so long as the IAR’s home state (i.e., where the IAR has its principal office and place of business) has adopted CE requirements that are at least as stringent as the Model Rule and the IAR is in compliance with its home state’s requirements.
In the event that an IAR’s home state has not adopted a CE requirement but the IAR is also registered in jurisdictions that have adopted such requirements, then the IAR can maintain compliance by satisfying the CE requirements of at least one state that has a CE requirement at least as stringent as the Model Rule.
When must IARs begin complying with the IAR CE Model Rule?
NASAA anticipates that administrative preparations for the IAR CE program will be completed in 2021, with compliance by IARs in jurisdictions that adopt the Model Rule required beginning in 2022.
Any IAR newly registered in 2022 or later will be required to meet the annual IAR CE requirements of the states where they are registered by the end of the first full calendar year following the year in which they first become registered. Note, however, that this grace period applies to entirely newly registered IARs; IARs with one or more active registrations who merely add a new state registration must comply with the CE requirement for the current year in all states where they are currently registered.
What steps must an investment adviser firm take to ensure it complies with the IAR CE Model Rule?
Although the Model Rule places the burden of compliance on the individual IAR, investment adviser firms and their CCOs should implement proactive policies and procedures designed to train IARs regarding the requirement, track state requirements for each jurisdiction where the investment adviser firm has registered IARs, and ensure timely completion and submission of CE credits by the IARs. Failure to do so can result in the firm’s IARs being placed on a “CE Inactive” status, scrutiny and/or intervention by the state regulator(s), and, ultimately, the inability to initiate or renew an IAR’s registration in the necessary jurisdictions. More information will be available later in 2021 regarding the IAR CE program currently in development by NASAA, such as where to find approved courses and how to report CE, which will permit firms to develop and adopt specific policies and procedures regarding IAR CE.
How many credits are required each year?
The Model Rule requires each IAR to complete twelve hours of CE, of which six are devoted to Products and Practices and six to Ethics and Professional Responsibility. Generally speaking, an IAR cannot receive credit more than once for the same course and must take care to avoid duplicate courses in subsequent years.
Are there any exceptions from the CE requirement for IARs who possess a professional designation or other specified qualifications?
No. However, NASAA expects that CE providers will offer courses that have been approved to satisfy multiple CE requirements, including those for IARs and certain professional designations. IARs can reduce their compliance burden by seeking out such dually approved courses.
Will dually registered IARs (i.e. individuals who are both an investment adviser representative and a registered representative of a broker-dealer) be required to obtain IAR CE in addition to existing CE requirements for registered representatives (“FINRA CE”)?
To the extent that FINRA CE is found satisfactory by NASAA, dually registered IARs can count FINRA CE toward the IAR CE “Products and Practice” credits. A dually registered IAR would still need to complete at least six credits of “Ethics and Professional Responsibility” IAR CE approved by NASAA.
What happens if an IAR does not fulfill the CE requirement for one or more calendar years?
If an IAR does not fulfill the annual requirement by the end of the calendar year, the IAR’s registration status on WebCRD will be set to “CE Inactive,” which will be viewable by state regulators and by the general public on IAPD and Broker Check. The CE Inactive status will remain until the deficiencies are corrected or action is taken by the applicable state regulator(s). If the CE Inactive status persists through the close of the following calendar year, the IAR will be ineligible to renew their registration or to initiate a new IAR registration via WebCRD until the deficiency is corrected.
Can an IAR “carry over” credits earned in one calendar year to the next, provided they have met the current annual requirement?
No, credits earned in excess of the annual requirement will be recorded on the IAR’s transcript but cannot be used to satisfy the CE requirement in subsequent years. In the event an IAR has a CE deficiency from a prior year, any credits earned will be first applied to the prior year deficiency before being used to satisfy a current year requirement.
If an IAR has terminated their registration but wishes to re-register within the two year window, must the IAR complete CE for the year(s) that they were not registered?
Yes, the IAR must correct any CE deficiency prior to re-registering as an IAR or, alternatively, the IAR can retake the Series 65 or Series 66 exam (or satisfy an applicable state exam waiver).
How does an IAR find approved IAR CE courses?
NASAA anticipates a number of CE providers will seek NASAA approval to offer IAR CE courses. Once finalized, information will be made available on www.nasaa.org regarding CE approved vendors and courses.
If your state registered or SEC registered investment adviser firm is an existing client of RIA Compliance Consultants and has questions about NASAA’s Model Rule for IAR Continuing Education, we encourage you to speak with your compliance consultant. Or, if you are not an existing client of RIA Compliance Consultants, click here to set up an introductory call with our Business Development Team.