On April 18, 2018 the Securities and Exchange Commission (“SEC”) released a new request for comment for potential new “licensing and continuing education requirements for personnel of SEC-registered investment advisers.” This request for comment comes in tandem with a new rule proposal that would introduce a new Form ADV Part 3 known as the Form CRS and additional requests for comment relating to “delivery of account statements to clients with investment advisory accounts; and financial responsibility requirements for SEC-registered investment advisers, including fidelity bonds.”
The SEC is requesting comment as to “whether there should be federal licensing and continuing education requirements for personnel of SEC-registered investment advisers. Such requirements could be designed to address minimum and ongoing competency requirements for the personnel of SEC-registered advisers.” Some questions posed by the SEC related to a potential licensing and continuing education (“CE”) requirement during the 90 day public comment period include:
- Should investment adviser representatives be subject to federal continuing education and licensing requirements?
- Which advisory personnel should be included in these requirements?
- How should the continuing education requirement be structured? How frequent should the certification be? How many hours of education should be required? Who should determine what qualifies as an authorized continuing education class?
- How could unnecessary duplication of any existing continuing education requirement be avoided?
- If continuing education requirements are a part of any licensing requirements, should specific topics or types of training be required?
- What would the effects be of continuing education and licensing for investment adviser personnel in the market for investment advice (i.e., as compared to broker-dealers)?
The full list of questions for public comment begins on page 29 on the request for comment.
Why is the SEC considering this new proposal?
The SEC provides some background on the potential new rule expressing concern that there may be some investment adviser regulatory gaps when compared to the broker-dealer regulatory construct:
“We have identified a few discrete areas where the current broker-dealer framework provides investor protections that may not have counterparts in the investment adviser context, and request comment on those areas.” Furthermore, “Associated persons of broker-dealers that effect securities transactions are required to be registered with the Financial Industry Regulatory Authority (“FINRA”), and must meet qualification requirements, which include passing a securities qualification exam and fulfilling continuing education requirements.”
Presently, all individual investment adviser representatives are licensed with the relevant state(s) regardless if the associated RIA firm is registered at the state or federal level. As such, it’s important to note that the SEC highlights a simultaneous effort at the state level to potentially introduce a continuing education requirement for investment adviser representatives:
“The North American Securities Administrators Association (“NASAA”) is considering a potential model rule that would require that investment adviser representatives meet a continuing education requirement in order to maintain their state registrations. An internal survey of NASAA’s membership identified strong support for such a requirement along with significant regulatory need. NASAA is now conducting a nationwide survey of relevant stakeholders to get their input and views on such a requirement.”
One interesting observation is that the SEC appears to be exploring the possibility of a continuing education requirement not just for investment adviser representatives, but also for other advisory personnel.
As we have previously wrote, we believe this effort should be supported by the investment adviser industry and would serve to address key concerns related to a potential regulatory gap as it relates to the continued training of individuals associated with RIA firms. Be sure to check back soon as we continue to further analyze and follow the latest developments of a potential investment adviser CE requirement.
RIA in a Box LLC is not a law firm, investment advisory firm, or CPA firm. RIA in a Box LLC does not provide legal advice or opinions to any party or client. You should always consult your relevant regulatory authorities or legal counsel if applicable.