Navigating Investment Adviser Representative Continuing Education Requirements

Maintaining competence and ethical standards are crucial for Investment Adviser Representatives (IARs) who play a vital role in guiding clients through the complexities of the financial landscape. To ensure that IARs remain up-to-date with industry changes and best practices, many jurisdictions have implemented continuing education (CE) requirements. This article delves into the specifics of IAR CE, drawing on information from various regulatory bodies and focusing on key aspects such as compliance, course content, and reporting procedures.

The Importance of Continuing Education for IARs

IARs are tested for knowledge before they are registered, but there is no mechanism to ensure that their level of knowledge and competence is maintained or expanded. By comparison, most other financial professionals are subject to CE requirements, including broker dealer agents, insurance agents, certified financial planners, and real estate agents. Given that IARs play an important role in their clients' financial lives, the North American Securities Administrators Association (NASAA) received significant support from state regulators and the securities industry for the creation of a CE program.

Overview of IAR CE Requirements

The North American Securities Administrators Association (NASAA), its members (state securities regulators), and industry have worked for years to develop a relevant and responsive IAR continuing education program. Many jurisdictions have adopted rules mandating that IARs complete a certain number of CE credits annually to maintain their registration. These requirements are designed to ensure that IARs stay informed about evolving industry regulations, ethical responsibilities, and best practices in investment advice.Beginning in 2022, IARs will need to attain 12 CE credits each year to maintain their IAR registration. A “credit” is a unit that has been designated by NASAA to be at least 50 minutes of educational instruction.

Core Components of IAR CE

The IAR CE requirement is 12 credits in a calendar year, not 12 credits per state. The 12 credits must include:

Products and Practices (6 credits): The Products and Practice component is designed to ensure ongoing knowledge and competency related to investment products, strategies, standards, and compliance practices relevant to the investment advisory industry. An IAR must satisfy six (6) credits annually of this component.
Ethics and Professional Responsibility (6 credits): The Ethics and Professional Responsibility component is designed to ensure ongoing knowledge and competency related to an IAR's duties and obligations to his or her clients including, but not limited to, issues related to the fiduciary duty owed to each client. Every Ethics and Professional Responsibility course must ensure that at least one-half (50%) of the material in the course is related to an IAR's ethical responsibility. An IAR must satisfy six (6) credits, including at least three (3) credits of ethics, annually, of this component.

Who Must Comply?

Every IAR registered in Michigan is subject to CE requirements. The mandatory CE program will apply to all registered IARs of both state-registered and federal covered investment advisers. When an individual registers for the first time as an IAR, they will not be subject to the CE requirements until the next calendar year. Similarly, if an IAR is registered only in states without a CE requirement and becomes registered in a CE state for the first time, that IAR will not need to comply with those CE requirements until the next calendar year. For example, if an IAR has not been registered in any states requiring CE and registers in North Dakota during 2024, that IAR will begin complying with the CE rules in 2025.

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Course Selection and Approval

IARs will self-manage selecting and completing courses, which will enable them to tailor their CE to their interests and business models. IARs are free to select courses that appeal to their interests and business models so long as they meet the credit requirements, and the courses are approved content for the IAR CE program. The program provides maximum flexibility for IARs to choose to complete their CE requirement by taking any approved course from any approved provider. To obtain credit, courses must be approved for the CE program.

Reciprocity and Multi-State Registration

An IAR registered in more than one state must comply with the requirements of each state securities regulator, which may vary. If the IAR's home state has not adopted the model rule, the IAR would need to comply with the CE requirements in each of the other states in which he or she is registered as an IAR. In the absence of home state adoption of the model rule, the IAR will be in compliance with the continuing education requirements of the other states in which the IAR is registered, and which have adopted the model rule, if the IAR is in compliance with the CE requirements of at least one state that has CE requirements that are at least as stringent as the model rule and the IAR has satisfied those requirements. If an IAR has an active IA registration in a state and adds another state, the current year IAR CE completion requirement will apply to the new state.

Utilizing Professional Designations for CE Credit

Credits from CE courses taken to maintain professional designations can apply to the IAR CE program so long as the provider and course have been approved through Prometric for IAR CE purposes. Providers will likely promote the fact that certain courses qualify for IAR CE so IARs can look for courses that meet the CE requirements for both IAR CE and their professional designations. For dually registered IARs, the CE required by FINRA for broker-dealer agents can be used to fulfill any of the CE requirements for IARs.

Reporting and Tracking CE Credits

IARs are responsible for complying with and tracking CE requirements. The firm also has the ability and may choose to monitor through FinPro an IAR’s compliance with CE. FINRA’s Financial Professional Gateway (FinPro) provides individuals (current or former representatives) direct access to resources and tools to manage their securities registration information and a platform to monitor their continuing education requirements. FinPro is an important tool for IARs because it provides them with a mechanism to view courses taken and the progress towards completion of their annual CE requirement. The course vendor/provider reports course completion to FINRA, NASAA’s vendor for program tracking. Credits must be reported within 10 days of class completion. Reporting is done twice a week. Must have IARs Central Registration Depository (CRD) number to report.

Fees and Course Repetition

The IAR CE course reporting fee, also sometimes referred to as the roster fee, is $3 per credit hour. 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. However, a duplicate course that has been updated with a new course number will provide the IAR with CE credit for that course. Every course that is taken must have a unique course ID. The course ID will be available to the IAR so they can review that against their own records.

Exam Rules

Online certification exams are open book. Course materials are available while the exam is in progress. The final exam must be passed with a score of 70% to receive CE credit. If the exam is not passed on the first attempt, students have two additional retakes for a maximum of three attempts.

Consequences of Non-Compliance

If an IAR does not complete the CE requirement by the annual deadline, the IAR will pay the registration renewal fee and CRD will set his or her IAR CE status to "CE Inactive." This status will then appear in the Investment Adviser Public Disclosure (IAPD) and in BrokerCheck The IAR can continue to do business. CE Inactive is notice to the IAR that if CE is not completed by the end of the year, the IAR will be unable to renew his or her registration. An IAR that is CE Inactive will hold that status in all states where the CE rule is effective following adoption of the model. An IAR who fails to comply with CE requirements by the end of a 12-month reporting period will renew as "CE Inactive" at the close of the calendar year until the IAR completes and reports all required IAR CE credits for the reporting period. An IAR who is CE Inactive at the close of the next calendar year is not eligible for IAR registration or renewal of an IAR registration. The IAR will then have a CRD status of Fail to Renew. Courses completed in the current year will apply to the past year if there is a deficiency to be resolved. Completed IAR CE credits completed in any year will first be applied to the previous year and then to the current year's requirement.

Re-registration After Termination

To re-register during the two-year exam window, the IAR would need to complete any missed CE. For instance, if the IAR leaves the industry in December 2023 without completing the 12 credits of CE for 2023, and then attempts to re-enter in 2025, the IAR would need to complete (before becoming registered) 12 credits for 2023 and 12 credits for 2024. The 12 credits for 2025 would be due by December 31, 2025. The CE for 2023 and 2024 need not be completed within those years but can be done a catch-up basis in 2025. Termination of an IAR registration from a state requiring CE does not remove the requirement any part of the year. The requirement continues to exist and may affect future registrations in IAR CE states.

Key Considerations for IARs

Proactive Planning: IARs should proactively plan their CE activities to ensure timely completion of the requirements.
Course Relevance: Choose courses that align with your business model and areas where you seek to enhance your knowledge.
Accurate Record-Keeping: Maintain accurate records of completed courses and credits to facilitate reporting and compliance.
Stay Informed: Keep abreast of any changes to CE requirements in the jurisdictions where you are registered.

Resources for IARs

NASAA's IAR CE Page: For general information and updates on IAR CE programs.
FINRA's Financial Professional Gateway (FinPro): To manage securities registration information and monitor CE progress.
State Securities Regulators: For specific requirements and guidance in each jurisdiction.

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