WealthManagement Magazine

Advisory Council Proposes End to Continuing Ed Grandfathering

If you've been in the business fewer than 10 years, don't count on "graduating" from the industry's regulatory part of continuing education upon your 10-year anniversary.The Securities Industry/Regulatory Council on Continuing Education has proposed nixing an automatic 10-years-and-out provision that has been a part of the program since its inception in July '95.Under current rules, all registered

If you've been in the business fewer than 10 years, don't count on "graduating" from the industry's regulatory part of continuing education upon your 10-year anniversary.

The Securities Industry/Regulatory Council on Continuing Education has proposed nixing an automatic 10-years-and-out provision that has been a part of the program since its inception in July '95.

Under current rules, all registered personnel must receive computer-based regulatory training on the second, fifth and 10th anniversaries of their registration. Veterans of more than 10 years have been exempted.

The council, comprised of industry members, regulators and brokers, has now agreed to changes that would require registered personnel to complete computer-based regulatory training after their second year in the securities industry and every three years thereafter for the rest of their careers.

"The change is with respect to those who have been in less than 10 years," says David DeMuro, chairman of the Securities Industry/Regulatory Council on Continuing Education, and senior counsel at Lehman Bros. "Before, they could graduate out after 10 years. We are hopeful that the more education the registered representative receives, the less likely they will inadvertently find themselves getting into trouble."

There will be a "grandfather" exemption for persons who've been registered more than 10 years as of the effective date of the new program.

The council also recommended a new program of separate regulatory continuing education training for supervisors and principals. It is expected that perhaps as many as 25,000 registered personnel will be classified as supervisors and principals and fall under the new training program.

In a press release, NASDR President Mary Schapiro said: "Putting in place an education program that is truly continuing will benefit investors tremendously. With millions of new investors in the markets today, and the growing array of financial products and securities that are being offered, an educated sales and supervisory force is absolutely essential to ensuring marketplace integrity."

The proposed change could take effect as early as July of '98 if approved by each SRO (the AMEX, CBOE, MSRB, NASD, NYSE and the PHLX), and the SEC.

The program will employ more advanced computer-training capabilities including sound and video. It will also include scenarios that more closely resemble the real-life situations faced by supervisors, requiring judgment calls.

"The scenarios will be grayer," DeMuro says. "It's not going to be 'Here's the right and wrong answer,' but more like, 'Here's the situation, you're a principal, how do you deal with it?'"

Initially, the regulatory element was designed to be "one-size-fits-all," covering all securities registrations, but regulators and industry members have been concerned that the current program did not cover specific job, nor was it designed to. Now that the program is up and running, DeMuro anticipates further specializing of regulatory training to match the different registration groups. The next "break-out" group, he figures, will be Series 6 licensees with a program that relates to their relevant regulatory needs.

"Ideally, in the future, we would like to see the program more tailored toward the day-to-day work of the registered person," DeMuro says. "A firm like mine [Lehman Bros.] is not involved in retail, but the vast majority of registered people are retail, so that was the natural place to start" with continuing education. Since the initiation of the regulatory CE program nearly two and a half years ago, more than 225,000 brokers have participated. Some 2,800 brokers have been placed on "inactive" status for failure to complete the training on their respective anniversaries.

At least 225 brokers have had their registrations dropped completely for failure to complete training within a two-year grace period after being relegated to inactive status.

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