Industry Update Articles
NASAA Adopts Investment Adviser Representative Continuing Education Model Rule
The recently-adopted and newly-implemented Continuing Education Model Rule for Investment Adviser Representatives (IARs) has multiple implications and effects for professionals throughout the financial services industry. Read more about the IAR Continuing Education (CE) Model Rule, who it will impact, where it is in effect, related requirements, and more.
What is Investment Adviser Representative Continuing Education (IAR CE?)
IAR CE is an annual continuing education requirement for IARs governed by the NASAA Model Rule on Continuing Education which was adopted in 2020 and implemented by states and jurisdictions beginning in 2022.
Why was the IAR CE Model Rule adopted?
NASAA’s membership, with strong industry support, adopted the IAR CE Model Rule to address the lack of a continuing education requirement for IARs in contrast to other financial services professionals. These types of professionals are often required to maintain or expand their level of knowledge and competence after initial qualification, which is what the IAR CE Model Rule will now accomplish for IARs.
Who is the IAR CE for?
Any Investment Adviser Representative (IAR) who is registered in a state or jurisdiction that has adopted the NASAA IAR CE Model Rule will be subject to its new CE requirements.
FINRA and IAR CE
For dual registrants, IARs who are also registered agents of BD firms, completion of the FINRA CE Regulatory Element may be applied to meet the Products and Practices component of the IAR CE requirement. NASAA will accept the Regulatory Element taken in 2020, 2021, and 2022 as an equivalent of the six credits for Products and Practices for 2022.
FINRA CE Firm Element training may also be applied to meet the IAR CE requirement if the training is approved by NASAA.
Professional Designation CE courses (CFP®, ChFC®, CFA®, PFS, CIC) are also eligible for IAR CE credit as long as they are approved by NASAA.
When does the IAR CE Model Rule go into effect?
The IAR CE Model Rule has gone into effect beginning in 2022 in the states that adopted the Model Rule by December 31, 2021. These are Mississippi, Vermont, and Maryland.
State by state: Where is the IAR CE Model Rule in effect?
IARs registered in 3 states (MS, MD, and VT) must complete their IAR CE requirement by December 31, 2022. Michigan, Wisconsin, Kentucky, Washington DC, Arkansas, South Carolina and Oklahoma have adopted the Model Rule in 2022, which means IARs registered in these states will need to complete IAR CE starting on January 1, 2023. As of August 2022, all other states listed have legislation pending to adopt the Model Rule.
January 1, 2022
January 1, 2022
January 1, 2022
January 1, 2023
January 1, 2023
January 1, 2023
January 1, 2023
|Washington DC||Adopted||January 1, 2023|
|South Carolina||Adopted||January 1, 2023|
|Arkansas||Adopted||January 1, 2023|
IAR CE Requirements
IARs are required to complete 12 hours of CE credit per year in order to maintain their IAR registration. This includes 6 hours of Products and Practices and 6 hours of Ethics and Professional Responsibility. An IAR taking more than 12 credit hours per year is not allowed to carry forward those excess credits into the following year.
Approved IAR CE Course Providers
IARs are required to take NASAA-approved CE courses from approved course providers. Any vendor, firm, individual, or state may provide CE so long as the provider and course are approved. The list of approved course providers—including Kaplan—can be found here.
IAR CE Costs
NASAA has implemented a course reporting fee of $3 per credit hour. Therefore in addition to any training costs, an IAR can expect to pay $36 per year to meet their CE requirement.
What is the CSRIC™ Designation?
Demand for “responsible” investment options has never been higher. In fact, at the end of 2019, more than one out of every three dollars that were being professionally managed in the United States—$17.1 trillion or more—was invested according to sustainable, responsible, impact (SRI) strategies. Industry experts also confirm that a majority of investors want their investments to incorporate environmental, social, and governance (ESG) criteria.
For financial advisors, this demand presents several challenges.
First, how can they acquire the insight and expertise to competently guide their clients towards ESG investments that fit their priorities? Second, how can they provide those clients with tangible evidence that they have genuine SRI expertise?
Recognizing these challenges, the College for Financial Planning®—a Kaplan Company created the Chartered SRI Counselor (CSRIC®) professional designation program for personal financial advisors who provide advice to help individuals manage their money and plan for their financial future. This article provides an overview of the program.
Becoming a Chartered SRI Counselor
Developed in partnership with US SIF, The Forum for Sustainable and Responsible Investment, the CSRIC® designation program is a unique program that blends SRI foundational knowledge and scenario learning. As a leading major financial credential dedicated specifically to SRI, the CSRIC® designation is supported by top financial firms.
Who is the CSRIC® Professional Designation Program for?
The CSRIC® Professional Designation Program is for advanced financial advisors who wish to obtain foundational knowledge and best practices for advising clients on SRI to help individuals manage their money and plan for their financial future, including
- Experienced advisors who desire financial planning credentials to advance their career
- Advisors who wish to specialize in SRI investing for new or existing clients
- Advisors who wish to pursue a Master of Science degree at a later date
Students enrolled in the program, will learn the history, definitions, trends, portfolio construction principles, fiduciary responsibilities, and best practices of SRI investments.
The CSRIC® Program Curriculum
The CSRIC® Professional Education Program is a graduate-level course.
The seven-course modules, which are offered as Live Online or OnDemand are:
- The Foundations and History of SRI
- Approaches to SRI
- Shareholder Advocacy, Community Investing, and Corporate Responsibility
- Portfolio Construction and Incorporating SRI into Financial Advising
- ESG Performance, Risk, and Rating Metrics
- The Fiduciary Standard and Communicating the Value of SRI
- Current and Future Opportunities
How Long to Study for the CSRIC® Professional Designation Program
The typical student should expect to spend approximately 135 hours in course-related activities to study and prepare adequately for the program’s examination. The CSRIC® program also does “double-duty” for professionals who are considering a master’s degree: designees receive direct credit for one course in the College’s MS in Personal Financial Planning program, saving them time and money while pursuing multiple credentials.
Certificate in ESG Investing vs CSRIC® Professional Designation Program
CSRIC® Professional Designation
Investment professionals who want to understand ESG issues and incorporate ESG factors into the investment process.
Advanced financial advisors who provide advice to help individuals manage their money and plan for their financial future and. who wish to obtain foundational knowledge and best practices for advising clients on sustainable, responsible, and impact (SRI) investments.
Students have 120 days from the date they are provided online access to complete a designation program (including testing and passing the Final Exam).
Number of Exam Attempts
4 within 12 months of registering
Post Exam Requirements
Professional designation holders are responsible for completing 16 hours of continuing education (CE) credits every two years and paying a renewal fee every two years.
Start Earning the CSRIC® Professional Designation Today
U.S. SIF members receive a 15 percent discount on the CSRIC® course and course-related materials. In addition, many leading financial advisory firms endorse the CSRIC® designation and will reimburse advisors for course-related expenses.
SEC Shortening Trade Settlement Cycle from T+2 to T+1
The SEC recently announced that trade settlement will be reduced from T+2 to T+1. Read more about the reason behind this reduction, when it will take effect, and what it will mean to member firms going forward.
What is the Settlement Cycle?
When is the Settlement Cycle being Shortened from T+2 to T+1?
Why is the Settlement Cycle being Shortened from T+2 to T+1?
Benefits of the Settlement Cycle being Shortened from T+2 to T+1
Concerns about the Settlement Cycle being Shortened from T+2 to T+1
Apart from the more widely understood future need to deliver securities and funds one day earlier, there are other concerns to the shortened cycle, which includes:
- the process of reclamation
- Regulation SHO
- sell-outs and
- other settlement methods such as DVP/RVP.
How Member Firms Must Respond to the Shortened Settlement Cycle
NAIC Adopts Best Interest Standard
Best Interest Standard Definition
Best interest is a term used in a number of situations including the medical and legal fields. In the financial sector it means setting aside any personal beliefs or biases and working for the good of the client at all times. It goes beyond recommending what may be a good fit and finding the best fit.
The NAIC Best Interest Standard Protects Annuity ConsumersThe updated NAIC Annuity standard requires insurance producers to recommend annuities that are not only suitable for the client, but are in the clients best interest. For example, if you are looking for a new car to use for your daily commute virtually any automobile is suitable for your needs. However not all automobiles are in your best interest. To determine your best interest the automobile dealer needs to understand more about you, your needs and your wants. They would need to document those needs and wants and disclose any conflicts of interest they may have. This may even require that dealer to recommend an automobile sold by another dealership.
About NAIC Model Regulation
NAIC Model Regulation for Suitability in Annuity Transactions
- Conflict of interest
- Know the consumer’s financial situation, insurance needs and financial objectives.
- Understand the available recommendation options.
- Have a reasonable basis to believe the recommended option effectively addresses the consumer’s financial situation, insurance needs and financial objectives.
- Communicate the basis of the recommendation to the consumer.
- Disclose their role in the transaction, their compensation, and any material conflicts of interest.
- Document, in writing, any recommendation and the justification for such recommendation.
NAIC Suitability in Annuity Transactions: Model Regulation Training Requirements
NAIC States’ Plans
Iowa was the first state to put the new NAIC rule in play. They have been followed by Alabama, Arizona, Arkansas, Delaware, Idaho, Michigan, North Dakota,Nebraska, Ohio and Rhode Island. States with rules pending include Connecticut, Kentucky, Maine, Montana, Nevada, Texas and Virginia.
When you look at a best interest rule like New York’s or the NAIC’s and compare it with the fiduciary standard for CFP® professionals, it’s hard to tell the difference. After enacting its Regulation Best Interest (BI), the SEC indicated that it views fiduciary and best interest as the same. Other organizations, most notably CFP Board, maintain that the fiduciary standard is stricter.
States Adopting and Proposing NAIC Requirements and Courses
Kaplan will be following the progression of the NAIC Best Interest Rule, along with any other standards individual states adopt. We encourage you to follow along. As they become part of each state’s insurance continuing education, we will also add them to our insurance CE packages.
States Adopting NAIC Requirements
- New Mexico
- North Dakota
- North Carolina
- Rhode Island
- South Dakota
- South Carolina
States Proposing NAIC Requirements
- South Carolina
- South Dakota
States with NAIC Courses Released
- New Mexico
- North Dakota
- Rhode Island
- South Carolina
States with NAIC Courses Pending
Best Interest Standard Training Courses for Annuity Agents
If you are ready for a Best Interest Standard Training Course, you can get started with Kaplan’s 1-Hour Training Course, or dive right into our 4-Hour Training Course. Learn more about training course options in your state.
Changes in SEC Regulation A and Regulation D
On March 15, 2021 certain important SEC rule changes went into effect.
SEC Regulation A
What is new?
The regulation now provides two offering tiers for both U.S. and Canadian issuers.
Tier 1 securities offerings up to $20 million in a 12-month period, including no more than $6 million sold on behalf of selling shareholders. Subject to a coordinated review by states and the SEC. The issuer must file Form 1-A (greatly simplified from the complex Form S-1) along with two years of financial statements. There is no need for these statements to be audited.
Therefore, on this tier, state “blue sky” laws of every state in which the issuer expects to raise money are applicable. When the offering is complete it must also file an exit report on Form 1-Z not later than 30 days after completing the offering, explaining how much was raised and how the money was allocated. Note that this harmonizes with Regulation D, which also requires a final report (using Form D) within 30 days of concluding the offering. Lastly, there are no restrictions to resale and no investor requirements, such as being an accredited investor.
Tier 2, as of March 15, 2021, securities offerings up to $75 million in a 12- month period, including no more than $22.5 million of securities sold on behalf of selling affiliate shareholders, such as officers and directors. This is an increase from the previous limits of $50 million and $15 million respectively.
Tier 2 permits a kind of mini-IPO allowing small, emerging companies to forego venture capital and raise substantial capital that is subject only to SEC scrutiny, preempting the burden of state regulation. New and innovative companies can look to nonaccredited investors such as their customers, employees, or even the general public for substantive financing with only a fraction of the regulatory burdens formerly seen. As we read in Tier 1, a Form 1-A must be filed along with two years of audited financial statements, and an exit report. A Tier 2 exit report can be satisfied by filing Form 1-Z or alternatively 1-K, which is specifically designed with the view to satisfy both purposes. With this tier the issuer must also file annual (Form 1-K), semi-annual (Form 1-SA), and “current report” (Form 1-U) similar to Form 8-K in public companies.
Companies that are already publicly reporting, such as companies that are listed on an exchange, will be considered compliant concerning their Regulation A ongoing disclosure obligations by remaining current in their public reporting obligations. Non-accredited investors are subject to limits on how much they can buy based on their annual income and net worth unless the offering is to be listed on a national stock exchange, then there is no restriction. Non-accredited investors are subject to investment limits based on the greater of annual income and net worth.
Both tiers exclude blank check companies (SPACS), registered investment companies such as mutual funds and asset-backed securities. “Bad actor” disqualifications also apply. A bad actor includes, in part, the issuer, directors, partners or executive officers who have:
- Criminal convictions relating to securities transactions
- Made false filing with the SEC
- Been suspended or expelled from SROs such as FINRA
These Regulation A offering statements and disclosures must be filed on EDGAR in the same fashion as we previous read about S-1 registrations for IPOs. Tier 2 issuers are required to concurrently file a short-form Form 8-A to register a class of securities under Exchange Act. This is very desirable because it allows a Tier 2 issuer, if it chooses to do so, to list on a national securities exchange. “
Testing the waters” on a new offering under Regulation A is permitted by the issuer to determine investor interest. This is done by distributing statements about the offering right up to the time the SEC qualifies its Form 1-A offering circular. During the pre qualification period, issuers must deliver a preliminary offering circular to prospective buyers at least 48 hours in advance of the sale unless the issuer is subject to, and current in, Tier 2 ongoing reporting obligations.
Regulation D Offerings
What is new?
As of March 15, 2021, a Rule 504, Regulation D offering, which is distinct from most of the Regulation D rules, involves the offering of securities in which the dollar amount does not exceed $10 million. It is distinct from 506 in that:
- There are no limitations on the number of purchasers, accredited or non.
- There is no requirement that purchasers meet suitability or sophistication standards, though bad actors, as mentioned above, are prohibited from participating.
Rule 504 offerings are not available for blank check companies (entities without a defined business or business plan).
|Regulation D||Size||Accredited Investors||Non Accredited Investors||General Solicitation*|
|Rule 504||$10 million||Unlimited||Unlimited||No|
*The JOBS Act required the Commission to eliminate the prohibition on using general solicitation under Rule 506 where all purchasers of the securities are accredited, and the issuer takes reasonable steps to verify that the purchasers are in fact accredited.
SEC Regulation Crowdfunding
Issuers may rely upon section 4(a)(6) of the Securities Act of 1933 (Regulation Crowdfunding), which enables companies to offer and sell securities exempt from the registration requirements of the act.
The rules require all transactions under Regulation Crowdfunding to take place online through an SEC-registered intermediary. That may be either a broker-dealer or a funding portal that permits a company to raise a new (2021) maximum aggregate amount of $5 million. The offering requires disclosure of information by filings with the Commission on Form C, including two years of financial statements that are certified, reviewed, or audited, as required. Besides, progress and annual reports. These must also be sent to investors and the intermediary facilitating the offering.
There are now investment limits for accredited investors. For non-accredited investors, they may purchase an amount equal to the annual income, or alternatively, net worth, whichever is greater. Securities purchased in a crowdfunding transaction generally cannot be resold for one year. Regulation Crowdfunding offerings are also subject to "bad actor" disqualification provisions the same as Regulation A and D.
1) Regulation A, requires an underwriting broker-dealer furnish an offering circular to purchasers?
A. 48 hours in advance of sales
B. 24 hours before the confirmation
C. 72 hours before the confirmation
D. Concurrently with the mailing of the customer confirmation
Regulation A requires that an offering circular be provided to purchasers at least 48 hours in advance of sales, so the answer is A.
2) The maximum public offering permissible under Regulation A is:
A. $500,000 per issuer and $500,000 per affiliate
B. $2 million per issuer and $100,000 per affiliate
C. $2 million per issuer and $500,000 per affiliate
D. $75 million
The maximum size of an offering under Regulation A (sometimes known as A+) is $75 million per issuer, so the answer is D. Sales are measured over a 12-month period.
3) Under Regulation D, Rule 504 offerings provide a safe harbor for the sales of securities:
A. Without regard to dollar amount
B. Not exceeding $10 million
C. Not exceeding $50 million
D. Not exceeding $20 million
Regulation D offerings are exempt transactions under the Act of 1933. Rule 504 provides a safe harbor from full registration for private placements in which the dollar amount to be sold is $10 million or less, so the answer is B. By comparison, Rule 506(b) and (c) has no ceiling on the dollar amount offered.
4) Regulation Crowdfunding permits offering limits to:
B. $1 million
C. $5 million
D. $20 million
Offering limits are currently set by federal regulators to $5 million, so the answer is C. They also amended the individual investment limits for investors in Regulation Crowdfunding offerings by removing investment limits for accredited investors.
SEC Spells out Use of the Terms “Advisor” and “Adviser” for Dual Registrants
That is about to change for many in the industry.
Many studies indicated that the general investing public was unaware of the differences between a broker-dealer and an investment adviser. Referring to oneself as a financial advisor added to the confusion. Given that the titles adviser and advisor are closely related to the statutory term “investment adviser,” their use by broker-dealers can have the effect of erroneously conveying to investors that they are regulated as investment advisers and have the business model, including the services and fee structures, of an investment adviser. Such potential effect undermines the objective of the capacity disclosure requirement under Regulation Best Interest to enable a retail customer to more easily identify and understand their relationship.
The disclosure requirement of the newly effective (June 30, 2020) Regulation BI attempts to eliminate that issue. In the simplest terms, the term adviser or advisor cannot be used if the member firm’s only registration is that of a broker-dealer and the individual’s registration is only as a registered representative. For those firms (and individuals) who are dual registrants, the term may be used even when the account is only a “BD” account and not solely for
The SEC specifically states: “We would presume the use of the terms adviser and advisor by (1) a broker-dealer that is not also registered as an investment adviser or (2) a financial professional that is not also a supervised person of an investment adviser to be a violation of the Disclosure Obligation under Regulation Best Interest.”
As with all rules, there are exceptions, and we recommend you check with legal counsel to see if any of them apply to your personal situation.
General Update for Accredited Investor and Qualified Institutional Buyer
The SEC adopted amendments to the “accredited investor” definition in August 2020. Historically, people who do not meet certain income or net worth tests, regardless of their financial sophistication, were prohibited from investing in many private markets. From here on, individual investors are permitted to participate in private capital markets not only based on income or net worth but also well-defined measures of financial sophistication.
The amendments allow investors to qualify as accredited investors based on professional knowledge, experience, or certifications, in addition to the existing tests for income or net worth. The amendments also expand the list of entities that may qualify as accredited investors, including allowing any entity that meets an investment test to qualify. The SEC also adopted amendments to update and improve the definition of qualified institutional buyer in Rule 144A under the Securities Act of 1933.
The New Categories
- Natural persons qualified based on certain professional certifications, designations or credentials, or other credentials issued by an accredited educational institution
- Holders in good standing of the Series 7, Series 65, and Series 82 licenses as qualifying natural persons. The Commission has the flexibility to reevaluate or add certifications, designations, or credentials in the future
- Concerning investments in a private fund, natural persons who are “knowledgeable employees” of the fund
- LLCs with $5 million in assets
- SEC- and state-registered investment advisers
- Exempt reporting advisers and rural business investment companies (RBICs)
- Governmental bodies
- Funds and entities organized under the laws of foreign countries that own “investments” as defined in Rule 2a51-1(b) under the Investment Company Act, more than $5 million and that was not formed for the specific purpose of investing in
the securities offered;
- "Family offices" with at least $5 million in assets under management; and
- Their “family clients,” as each term is defined under the Investment Advisers Act; and
- The term “spousal equivalent” to the accredited investor definition so that spousal equivalents may pool their finances for the purpose of qualifying as accredited investors
For those who wish to reference the rule, the amendment to Rule 215 replaces the existing definition with a cross-reference to the definition in Rule 501(a).
The definition of qualified institutional buyer in Rule 144A is now expanded to include limited liability companies and RBICs if they meet the $100 million in securities owned and invested threshold in the definition or any institutional investors included in the accredited investor definition provided, if they meet the $100 million threshold.
These amendments become effective 60 days after publication in the Federal Register. Once the new rule is in effect, our question banks will be updated, and the proper text will be added to the Content Updates of most FINRA exams and the NASAA Series 65 and 66 exams.
A registered broker-dealer has lines of business that include acting as an agent for privately placed equity and debt securities. Often the issue amount exceeds $20 million. The firm is medium-sized and currently employs 250 representatives qualified to offer general securities. The firm has a new employee four-month training program with a minimum participation entry qualification requirement of passing the Series 7 examination. This new training class is comprised entirely of people who graduated from college within the past two years and demonstrated an aptitude for the securities industry by taking a third-party administered test. Which of the following statements concerning a new private equity placement is true?
A) Following successful completion of the firm’s training program, a representative’s pay would need to be equal to or exceed $200,000 per year with a strong likelihood that it would continue to be at that level.
B) Following successful completion of the firm’s training program, a representative would qualify to invest in the private offering if able to demonstrate by exam sufficient knowledge of Regulation D and Rule 144.
C) Following successful completion of the firm’s training program, any representative able to prove liquid assets totaling $1 million exclusive of primary residence may make a restricted investment in the offering.
D) Following successful completion of the firm’s training program, each representative would qualify to invest in a private offering.*
Participation in a private placement of securities requires, with limited exceptions, that the investor be accredited. That includes those registered representatives who are currently qualified as a Series 7 General Securities Representative.
Two Penny Coal, a limited liability company with $500 million invested in investment-grade corporate debt securities was approached by an agent for the issuer of a $1 billion private placement of convertible debentures rated A+ by Standard & Poor’s to judge interest in a $50 million piece. Two Penny Coal investment managers agree to purchase the piece. Which of the following is true following the purchase?
A) The firm may sell the debentures to QIBs without regard to a holding period.*
B) The firm must hold the securities for six months before being offered for sale to any person.
C) The firm may offer to sell the securities to U.S. citizens living abroad without concern of a holding period.
D) The firm must hold the debentures for at least one year.
Two Penny Coal is a limited liability company that meets the $100 million threshold of a qualified institutional investor. It may purchase the offered securities and, if it chooses, offer them to another qualified institutional buyer (QIB) without concern of a holding period relying upon Rule 144A.
The SECURE Act: Which Investors Are Affected and How?
It has been several decades since the last major piece of retirement legislation made its way to the President’s desk. With the president’s signature on December 20, 2019, the Setting Every Community up for Retirement Enhancement (SECURE) Act makes many small improvements to existing retirement savings options that, collectively, add up to a significant change. Additionally, the act contains a few provisions not tied to retirement planning, but of interest to financial advisers and their customers.
The act originally passed out of the House in May on a 417-3 vote. It was expected to sail through the Senate and make its way to the President’s desk quickly. A few senators wanted a provision or two added to the bill and blocked passage. After some negotiation, the act passed through the Senate as part of a spending bill and was signed into law.
The SECURE Act brings change to a number of investors, including:
- Those saving for retirement
- Those nearing or in retirement
- Employers with or considering retirement plans for their workforce
- Expectant parents
- Those saving or paying for education
- And several other minor provisions
Saving for Retirement
- Current law prohibits contributions to traditional Individual Retirement Accounts (IRAs) after the age of 70 ½. Beginning with the tax year 2020, this rule is removed. As long as a person has earned income, they may continue to contribute to a traditional IRA.
- Employers who provide a 401k plan for their employees are required to include employees that are age 21 and have worked 1,000 hours or more in the prior 12 months. Beginning in 2021, employers must also include part-time workers. A part-time worker is defined as having worked 500 hours or more for three consecutive years and 21 years old by the end of the three-year period.
- New provisions will make it easier for employers to offer annuities within 401k plans. It is likely that more annuities will be made available within 401k plans as pay-out options for retirees.
Nearing or in Retirement
- Beginning for the tax year 2020, IRA owners must begin to take Required Minimum Distributions (RMD) from their IRAs beginning at age 72. The current requirement is to begin to take these distributions beginning at age 70 ½. This rule does not apply to those that have already reached 70 ½ by the end of 2019.
- Those who inherit an IRA have been able to choose an RMD payout based on their life expectancy. With a younger person, this could result in very small RMDs and accounts that payout for very long periods of time. This is popularly known as a “stretch IRA” and was a popular estate planning tool. However, this rule is changing. For IRA owners who die after the end of 2019, their beneficiaries must take their distributions over a period of 10 years, effectively eliminating the stretch IRA option. If a stretch IRA is part of your clients’ estate plans, it is time to find a new strategy.
- Small companies (and their employees) have struggled to afford retirement plans for their employees. New rules under the SECURE Act allow the creation of Multiple (or Pooled) Employer Plans (MEPs). Two or more separate employers may join together to offer a retirement plan to their employees. These MEPs may be formed starting on January 1, 2021.
- The Act increases the company tax credit for starting a retirement plan and allows the credit in each of the first three years of the plan.
- Part-time employees may now be included in plans, and there are new rules for offering annuities in employer-sponsored plans.
- Qualified automatic contribution arrangements may be increased over time to as high as 15 percent (the current cap is 10 percent).
- There are several other new rules for employers. Most of these changes are designed to enhance retirement savings. If you are an employer, then you should talk to your plan adviser about changes that affect your company. If you are an adviser, then you should be ready for those phone calls.
- The SECURE Act allows for a tax-free withdrawal from IRAs and other retirement plans for the birth of a child without the distribution being subject to a 10 percent penalty. The withdrawal may be up to $5,000, and married couples may each take out $5,000. The distribution must be taken within the first year of the child’s birthday. Income taxes are still due on the distribution but without a penalty.
- The Act extends the same penalty-free withdrawal for costs associated with adopting a child.
- The definition of “qualified education expenses” now includes fees, books, supplies, and equipment needed for apprenticeship programs and certifications.
- Up to $10,000 of 529 funds may be used to pay down student loans for the account beneficiary, plus an additional $10,000 for each of the beneficiary's siblings.
There are other provisions to the SECURE Act, but the above are the parts that are most likely to appear on industry qualifying exams. If you are taking an exam after January 1, 2020, be sure to review when these different rules become effective. You can expect test questions for the new rules to appear along with their effective dates. If you are an adviser, then you should get up to speed on the SECURE Act and the changes it brings to your clients and customers.
New York Amends Regulation 187: What It Means for Insurance
In July 2019, the New York Department of Financial Services (DFS) announced an amendment to New York Insurance Regulation 187 that affects annuities and life insurance sales. It requires insurers to establish new standards and procedures for how agents and brokers make insurance and annuity product recommendations. In this article, I’ll explain the amendment, what it means for insurers and producers, and where you can get more education on this regulatory change.
Looking for Continuing Education classes that meet the Regulation 187 training requirements? We have them in our New York Total Access CE library.
The Best Interest Rule
The “Best Interest Rule” is an amendment to existing New York State suitability standards for annuity transactions. Prior to this change, annuity recommendations producers had to be suitable for the client. The amendment raises the bar in that it requires recommendations to be in the best interests of the consumer. These requirements also apply to life insurance recommendations.Since the DOL Fiduciary Rule was vacated, regulatory bodies and states have been seeking other ways to hold insurance producers, brokers, and financial companies to the same standards.
Amending Regulation 187 is New York’s answer to the issue. The New York DFS official announcement states that the rule “requires insurers to establish standards and procedures to supervise recommendations by agents and brokers to consumers with respect to life insurance policies and annuity contracts issued in New York State so that any transaction with respect to those policies is in the best interest of the consumer and appropriately addresses the insurance needs and financial objectives of the consumer at the time of the transaction.” On August 1, 2019, the best interests rule went into effect for annuities; for insurance, the effective date is February 1, 2020.
What the Rule Means for Insurers and Producers
By mandating that life insurance or annuity recommendations to be based on the best interests of the communities, the rule is designed to keep financial compensation or incentives from influencing the recommendation made to a client. It requires insurers to develop, maintain, and manage procedures for preventing consumer financial exploitation. Basically, insurers must educate and supervise agents and brokers to make sure that they are putting their clients’ needs above their own when they recommend life insurance and annuities products. Also, insurers should take note of the “life insurance policies and annuity contracts issued in New York State” language because it means that non-resident, as well as resident producers, are affected.
There are important exemptions, however. The rule does not apply to retirement plans covered by the Employee Retirement Income Security Act (ERISA), other retirement and deferred compensation plans maintained by employers, and direct sales to consumers where no recommendation has been made by the insurer.
There is controversy around the amendment. The New York Chapter of the National Association of Insurance and Financial Advisors filed a lawsuit to stop it, claiming that exempting direct sales to consumers gives those insurers a competitive advantage over producers. Another lawsuit has been filed by several independent agents’ organizations stating that the amendment is too subjective in the use of the term “best interest.”
If Regulation 187 clears these hurdles, it is very likely that other states and organizations will follow suit. In fact, the SEC has already adopted a package of best-interest rules and regulations. The National Association of Insurance Commissioners (NAIC) is drafting a model regulation that has standards similar to those of Regulation 187. And, New Jersey and Nevada are exploring best-interest rules of their own.
The Life Insurance suitability and best interests requirements went into effect February 1, 2020. Producers recommending a life insurance policy to a New York consumer going forward must be trained on the new provisions in Regulation 187 related to life insurance suitability and best interests.
As part of our New York Total Access CE library, Kaplan Financial Education offers several courses designed to help you meet the Regulation 187 training requirements.
FINRA Moves to Prometric as Single Vendor for Securities Qualification Exams
As of January 1, 2018, the Financial Industry Regulatory Authority (FINRA) has chosen Prometric as the single vendor to deliver its many securities qualification examinations (learn which exams Kaplan can prepare you for here).
Historically, FINRA has provided two vendors: Pearson VUE and Prometric. The last day anyone was allowed to sit for a FINRA exam at a Pearson VUE testing center was December 31, 2017.
If a candidate did not pass an exam at a Pearson VUE testing center by December 31, 2017, they are only allowed to reschedule with a Prometric testing center.
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Prometric complies with the Americans with Disabilities Act (ADA) by supporting testing accommodations or modifications. However, the candidate must submit an accommodation request to FINRA for review and approval. If FINRA approves the accommodation, it will then let Prometric know before the appointment.
Those securities professionals who have previously taken examinations at Pearson VUE need not worry about their testing records, as they are maintained by FINRA. If a copy of a score report for a test taken at Pearson VUE is needed, contact FINRA at (800) 999-6647.
FINRA Proposes Big Changes to Securities Continuing Education
New Rules Proposed for both Firm Element and Reg Element CE
Nothing is certain but change! Securities Industry Continuing Education (CE) programs may soon undergo significant changes if new proposals are adopted. The new ideas are now in the “testing the waters” stage and have been floated out to firms at the 2018 FINRA Conference and via new FINRA press-release and Reg. Notice. “What does this mean to me?” you ask. If you’re involved in CE program oversight, compliance, or simply a “covered person” required to complete CE, you should to read on and learn more. Change can be disruptive but may also come with some benefits for you and your firm.
CE Definitions and Historical Context
Firm Element CE (FE) is training delivered to the firm’s “covered persons” (primarily those who meet with the investing public or their direct supervisors). Firm element courses/content—“in house” or via third-party education providers—are determined after conducting a "needs analysis" that is specific to each firm and addresses the nature of business conducted and any pertinent issues affecting the firm or its registrants. The FE needs analysis must also consider the results of its registrants’ recent Reg Element CE completions (i.e., where were they deficient?). Once the needs analysis is done, a firm "training plan" is created. FE is done annually and firms must document, and be prepared to defend, their FE training program.
Regulatory Element CE (Reg Element) is prescriptive training (i.e., determined by FINRA and NOT by the frim) and is based upon individuals’ registration type (e.g., different content for Supervisors vs RRs):
- S101: General Program for Series 7 Registered Persons
- S106: Investment Company Products/Variable Contracts Representatives
- S201: Registered Principals and Supervisors
- S901: Operations Professionals
Reg Element training cycles (registrant’s exam window opens) begin at the second-year anniversary from initial registration and every three years thereafter. Reg Element is delivered online via FINRA’s Online CE System, and curriculum generally consists of important rules and regs, compliance, ethical and supervisory subjects, and sales practice standards. Reg Element must also be completed within prescribed time-frames.
Abbreviated History of Securities Industry Continuing Education (CE)
In concert with the self-regulatory organizations (SROs*), the rules for continuing education were developed by The Securities Industry/Regulatory Council on Continuing Education—or more simply the “CE Council” (CEC)—and approved by the Securities and Exchange Commission (SEC) on February 8, 1995. Firm Element and Regulatory Element (Reg Element) went into effect in July of 1995. Several key Reg Element rule changes were implemented over the years, yet Firm Element (FE) has remained largely untouched.
In 2015, with approval of amendments to FINRA Rule 1250 (Continuing Education Requirements), the “new era” for CE began. Specifically, the CE Online Program was rolled out. As a result, online Reg Element CE fees were reduced to $55 per participant, compared to the physical (onsite) test center delivery charge of $100. Another important change was the elimination of “In-Firm Delivery” of the Reg Element. In-Firm Delivery (via supervised sites set up at firms) was phased out effective January 4, 2016. All Reg Element Programs are now available and must be completed through FINRA's CE Online System.FINRA’s new system allows participants to “satisfy their CE Regulatory Element requirement from a home or office computer—anytime, anywhere.”
The New FINRA/CEC Proposals for Reg Element and Firm Element
If implemented, the new (Sept 2018) FINRA/CEC proposals will have wide impact on firms and their “covered persons”—those who must participate in both Reg Element and Firm Element CE. The new proposals are outlined in FINRA’s Sept 6, 2018 News Release and in more detail through FINRA’s Sept 8 Reg Notice 18-26.
What are the primary “CE Program” changes under consideration? FINRA and CEC are now soliciting feedback from member firms around the notion that Firm Element (FE) can more effectively be provided through a single platform, where content standards are more uniform, redundancies can be minimized, and delivery methodology can be more efficiently tracked and maintained. Specifically, FINRA/CEC are suggesting that all FE content should be delivered via FINRA's Online CE System and supported via email notifications through the Financial Professional Gateway (FINPRO). If these changes are implemented, this would remove both ‘in house’ (member firms) and third-party CE vendors from the CE delivery and in some instances 'tracking' business, albeit FINRA is making it clear that they will continue to 'consider' (presumably there will be a vetting process) and utilize course content from firms and education providers, as long has the content can be formatted for delivery through FINRA’s system. Moreover, FINRA has proposed one (1) course catalogue where all member firms can choose content which meets/matches their training plan along with FINRA’s new “to be defined” minimum standards; “FINRA and the CE Council would work together with third-party training providers to offer a large catalog of readily available materials that are centrally located for convenience.”
FINRA and CEC are also touting the Financial Professional Gateway (FINPRO) e-notification and reporting capability; “The FINRA CE delivery platform provides the most efficient and effective means of tracking their compliance with the proposed CE requirements.”
FINRA/CEC arguments in favor of the proposed ‘FE move’ to FINRA Online CE System:
- Greater consistency in content and presenting material in an optimal learning format.
- Reduction in redundant content (i.e., not repeating topics covered during Reg Element or other credentialing programs); “The CE Council is considering creating a centralized content catalog to serve as an additional source of Firm Element content.”
- Automated email notifications to “covered” registered persons and course completion reporting to firms and individual registrants; “FINRA has also released a system to improve access to data and delivery of services to registered representatives, although the system is not yet widely used. This system, the Financial Professional Gateway (FINPRO).”
- Ensuring adequate CE training is delivered (they are considering“defined minimum standards”)—FINRA has observed that FE training plans vary widely (firm-by-firm), and some firms ‘over train,’ yet other firms “provide very limited amounts of Firm Element, and the CE Council is concerned that registered representatives at those firms may not be receiving adequate training."
- Ability to offer “FE credit” to forms of training not recognized in Firm Element programs today (e.g., offering FE credit to those who recently completed industry credentialing programs—CFP®, CFA®, etc.).
- Assisting those who’ve left the industry—more than 2 years out—by allowing them to reenter (“re-qualify”) by way of completing a TBD curriculum (consisting of both FE and Reg Element content), without having to take a new qualification exam. FINRA is making the argument that this re-qualification process is problematic unless uniformity and consistency are maintained (which can be accomplished via FINRA’s Online CE Program); “The central idea is to allow previously registered individuals to complete an annual Regulatory Element as well as additional content equivalent to Firm Element while out of the securities industry.” However…“Without establishing an industry Firm Element baseline expectation, it is difficult to determine the appropriate expectation for individuals who are maintaining their qualification outside the industry.”
While most of the bullet points above pertain to FE, there is one new notion affecting Reg Element. SICE/FINRA are proposing a move to annual Reg Element CE training versus the current 3-year cycle, and this makes elimination of redundant FE content all the more important from FINRA’s perspective, and no doubt an idea that firms and covered persons will also appreciate.
New regulations are rarely instantaneous and CE rule changes will be no exception. The CE Council is presently gathering additional info on current firm practices and needs. FINRA and the CEC are also soliciting feedback (comment period expired Nov. 8, 2018) and will continue to formulate their ideas before delivery of a formal rule proposal. Given that late time of year (Oct. 2018 as of this article’s publication date) it is unlikely any formal rule will be drafted before year-end. It is more probable that CEC and FINRA will have a new proposal coming in the first or second quarter of 2019 followed by a comment period. Bottomline -- new CE rules will likely NOT be finalized until 2020 or 2021. Yet as the saying goes, "time flies."
*In May 1993, six SROs—the New York Stock Exchange, American Stock Exchange, Chicago Board Options Exchange, Municipal Securities Rulemaking Board, NASD, and Philadelphia Stock Exchange—created the Securities Industry Task Force on Continuing Education to study the issue of continuing education and to develop recommendations.
MSRB Modifies the Series 52 Qualification Exam
The Municipal Securities Rulemaking Board (MSRB) filed a proposal with the SEC to modify the Series 52 exam into a specialized knowledge examination, while at the same time recognizing a passing score on FINRA’s Securities Industry Essentials (SIE) Examination as a prerequisite. This change was implemented on October 1, 2018.
Summary: General Knowledge Content Redundancy Removed
The Series 52 exam once had general knowledge content that is now tested by the SIE exam. The MSRB accepts FINRA’s new SIE exam and has restructured the Series 52 exam to eliminate duplicate testing of general securities knowledge. The exam is now a more tailored, specialized knowledge exam.
MSRB, Series 6, and Series 7
The MSRB continues to recognize, even revised, the General Securities Representative Qualification Examination (Series 7) for qualification as a “municipal securities sales limited representative,” and the Investment Company and Variable Contracts Products Representative Examination (Series 6) for qualification as an “investment company/variable contracts limited representative to further regulatory consistency.”
There is no impact to the Series 53 exam.
Why the DOL Decision Reversal Doesn’t Matter
In early July, the Department of Justice petitioned the Supreme Court to challenge the US Court of Appeals for the 5th Circuit Court’s decision to vacate the Department of Labor’s long anticipated “fiduciary responsibility”
rule. This decision effectively turned back the clock 2 1/2 years and unwound years of work by the DOL to regulate, restrict, and direct financial advisors to act in clients’ best interest when managing qualified retirement accounts. While
many firms are now breathing a sigh of relief, the reversal of this decision will have no material impact on the direction of the industry. Acting in clients’ best interest, whether it’s qualified or unqualified accounts, is well
For years now, DALBAR has tracked and reported consistent investor underperformance based on fixed and equity market indexes. In its more recent “Quantitative Analysis of Investor Behavior” published in April, equity investors underperformed the S&P Index by 191 basis points over the last 20 years. While that gap is significant, it pales in comparison to the 416-basis point gap that fixed investors underperformed the Barclays Aggregate Bond Index over the same time period. For 24 years in a row now, both equity and fixed income investors have consistently lagged behind their respective market index by significant margins. The only explanation is bad investor behavior: buying and selling their investments at the wrong time.
Investors haven’t achieved this consistent level of underperformance all on their own. For decades, financial advisors and financial services firms have sold consumers what is emotionally easiest for them to buy. How can I make that claim? When is it easiest to sell an equity? When the market is rising. When is it easiest to sell a fixed asset? When the market is tanking. It’s not the asset class that creates the problem. It’s the use of the asset class that creates the issue of underperformance. Consumers are waking up to the fact that while their financial advisor may be winning, they’re losing.
Managing Emotions: The Triple Win
I entered the industry as a new financial advisor in 1985. Back then, financial planning was the new cutting-edge tool in the industry. Planning helped clients be better investors because they now had longer term goals with defined timeframes. There was incentive for them to save more money if they weren’t on track for their goals. The net result was that clients saved and invested more, and as a result, advisors made more commissions, and their firm had more assets to manage. This was the “triple win.”
Since then we’ve realized that many of the fundamental tools of financial planning, while necessary, are no longer sufficient. Why? Because investors aren’t rational. They act on emotion too often and when they do, it contributes mightily to their underperformance. Tools like Modern Portfolio Theory, asset allocation, and Monte Carlo simulation don’t account for investors getting emotional about their money.
Behavioral finance helps us understand why that happens; between our emotional reflexivity and psychological decision-making-pitfalls, we have a tendency to make poor choices often. Industry-leading financial advisors in the US, Canada, and around the world are now equipping themselves with the tools and skills to recognize and manage client emotions. These new tools, when used effectively, enable clients to make better investment decisions and create an even more powerful value proposition for the advisor. By acting rationally, clients improve their return on their assets, and they end up with more assets. Advisors and their firms who use the powerful tools for behavioral financial advice exercise their fiduciary responsibility by acting in their clients’ best interest. In the end, they have more money to manage and therefore generate more revenue.
Disclaimer: Chuck Wachendorfer is Partner and President of think2perform, Kaplan’s partner for our behavioral financial advice program. The opinions expressed in this article are solely those of the author based on personal research and observations. They should not be viewed as legal advice.
POINT OF VIEW: SEC’s Best-Interest Rule Rises on the Bones of the DOL’s Fiduciary Rule
Disclaimer: William R. James is a Senior Editor at Kaplan Financial Education. The opinions expressed in this article are solely those of the author based on personal research and observations. They should not be viewed as legal advice.
Following a loss of two federal appeals court hearings and the passing of a deadline to seek a Supreme Court review, it is safe to say that the Department of Labor’s Fiduciary Rule is dead. The objective of the rule was to ensure that financial professionals (broker-dealers and registered representatives) put their customers’ financial interests ahead of their own when recommending retirement investments. President Trump ordered a review of the rule “to determine whether it may adversely affect the ability of Americans to gain access to retirement information and financial advice.”
So where does that leave us? After laying out $5 billion to implement the DOL’s regulatory thrust, there’s much bewildered head-scratching in the financial services industry. What was that all about? In some ways, there’s a sense of relief that regulation is settling back to its customary regulatory provider by registered advisers and broker-dealers. But, Congress’s view of two separate authorities acting in different capacities was tamped down, leaving the whole matter in a legal mess.
The DOL Stumbled
Congress looked explicitly to the DOL for regulatory protections of retirement plans rather than the SEC, reasoning that the Commission operates under a different regulatory framework and that it has no jurisdiction over advice appertaining to an investment that is not a security. In other words, special protections would be desirable for retirement accounts and that, in the view of Congress, would be best handled by the DOL. The Fifth Circuit was mindful of that. But it then found that the DOL did not have the authority to adopt the new fiduciary advice definition (“the Fiduciary Rule…is inconsistent with the entirety of ERISA’s ‘fiduciary’ definition”) and, that by adopting the Fiduciary Rule, it acted arbitrarily and capriciously (“the Rule fails to pass the tests of reasonableness as viewed under the Administrative Procedures Act”). The court vacated the Fiduciary Rule in toto, striking down both its new fiduciary advice definition and the exemptions from it.
What drove the DOL to turn its back on a wealth of available expertise is inexplicable. The SEC has decades of experience dealing with disclosure, and yet the DOL sought no counsel or advice. In fact, that reach was slapped by the Fifth Circuit, which called out the DOL’s highly questionable authority and vacated its controversial, checked-out rule. The Fifth and Tenth Circuits found it wanting, ordering the DOL to vacate the rule, declaring it unreasonable. It constituted "an arbitrary and capricious exercise of administrative power.” The Department of Labor’s overstepping to transform and regulate in entirely new ways many thousands of financial services providers and insurance companies for retirement plans, falls outside of what is reasonable.
Enter the SEC
Stepping up quickly to fill the void, the SEC announced its own long-anticipated alternate rule. Known as Regulation Best Interest (Reg BI), the Commission took a decidedly different approach. SEC Chairman Clayton voiced the concern of many that there needs to be “clarity and harmony to investment advisor, broker-dealer standards of conduct.” SEC Commissioner Michael Piwowar, who along with Clayton voted in favor of the Best Interest proposal, stated, “A solid building block, it imposes a new best-interest standard.”
Despite Congress’s intentions, Reg BI is the Commission’s answer to the Labor Department’s now defunct rule with the aim of providing a unified fiduciary standard. Commissioner Piwowar has made his distaste for the DOL’s effort obvious. He described it as a “terrible, horrible, no good, very bad” rule due in part to the DOL acting unilaterally without any input from the SEC, FINRA, state securities, and insurance regulators.
The SEC-proposed rule appears to offer a gentler approach than the DOL. By introducing a uniform standard of conduct for broker-dealers and registered advisers in light of their different relationship types and models for providing advice, the Commission offers a deft touch to regulation. Brokers would be required to disclose conflicts of interest and look to eliminate or “mitigate” them. But, brokerages would be required to mitigate every material conflict of interest. That means the door is open for a carefully applied sales contest. The SEC has stated: “We do not intend our standard to prohibit a broker-dealer from having conflicts when making a recommendation."
With this shift, financial services firms are now free to review their policies as they pertain to retirement accounts. Even with the departure of the Fiduciary Rule, firms want to keep clients’ best interests in the forefront and consistent with just and equitable principles of trade.
The Defunct Fiduciary Rule vs. the Proposed Best-Interest Rule
So, how do the rules differ? Here are some of the main differences.
In the view of some commissioners, one of the failings of the DOL rule was that it dismissed the SEC’s experience dealing with conflict of interest disclosure. In this requirement, the SEC is addressing the confusion from the use of misleading titles by financial services professionals. Retail investors must be able to distinguish between the types of financial service providers they can choose. This may include those member firms and associated persons who sell products and those who offer advice as a fiduciary.
Currently, the many impressive sounding titles used by financial services professionals offer investors little help. For example, under current regulations, anyone can use financial “adviser” or “advisor,” regardless of whether they are registered investment advisers complying with investor protections or not.
The SEC’s new Form CRS will require financial services professionals to provide their retail customers a simple disclosure form to clarify the scope of customers’ relationships with those who offer them financial services.
Regulation Best Interest (Reg BI)
In looking for a regulatory alternative to the DOL Fiduciary Rule, the Commission is seeking to ultimately adopt a clear rule for which compliance is not so difficult that firms stop offering retail investors services they can pay for through commissions or other transaction-based fees. This is in stark contrast to the DOL rule. The “best interest” standard is altogether different from the long-established Investment Adviser’s Act fiduciary standard and FINRA’s suitability standard. The ambiguity in the SEC’s proposed rule may likely make it difficult for broker-dealers to know how to comply with it, which could then lead to a decision to stop offering transaction-based services.
The question must be considered, will Reg BI raise compliance costs to such a level that it becomes disadvantageous for broker-dealers to offer retail investors transaction-based advice?
The SEC’s proposed rule will require:
- Broker-dealers and registered representatives to not place their interests ahead of those of their retail customers
- Protection of retail customers from investment strategies that drive up broker-dealer fees
- Broker-dealers to provide customers with enhanced disclosures of conflicts of interest.
Interpretation of the Standard of Conduct for Investment Advisers
The issue hasn’t received the same hard look as the broker-dealer standard of conduct. Most would be able to identify the “fiduciary duty” as the standard of conduct for investment advisers, but readily identifiable parameters may not be so easy to find. In other words, what precisely does the fiduciary duty demand? The Investment Advisers Act offers few particular obligations related to the standard. Consequently, the proposed interpretation places its requirements from common law principles.
The DOL’s heavy legal hand will not be missed. The specter of class-action lawsuits no matter how watered down by exemptions or looming private right of action had a chilling effect, causing the abandonment of entire lines of business, in addition to the $5 billion price tag before it was vacated.
The Commission’s best-interest rule drubbed out the legal axe that hung over the necks of broker-dealers and their associates who failed to pick up the nuances of the DOL’s Fiduciary Rule. The DOL provided a path for customers to sue brokers in class-action lawsuits. The SEC-proposed rule has no such blade in it. This suggests to careful readers that FINRA’s Code of Arbitration will remain the backbone of dispute resolution.
The legality of the SEC stepping up to plug the hole left by the DOL’s Fiduciary Rule being vacated has yet to be decided. The current congress has not made any appreciable noise about it. In that absence, it is safe to say that the SEC’s take is correct. Apart from the plain language approach, which is a welcome break, providing customers more choice is a good thing. The Commission sent a clear message to the financial services industry: inform clients of and eliminate or greatly diminish (not eliminate) conflicts. Informed choice is the underlying principle over the ponderous and legal morass facing those firms that did not toe the line with the Labor Department’s rule.
Amendments to the CUSIP Rule (MSRB Rule G-34) Effective June 14, 2018
In trading, receiving, delivering, and safekeeping municipal debt securities, it is far easier for dealers to identify a specific bond if it has a CUSIP number assigned to it.1 There are millions of municipal bonds issued, and they can be very similar. For example, an Ohio Turnpike, 4.000%, maturing in October 2028 Series 67760HHE4 can easily be mistaken for an Ohio Turnpike, 4.000%, maturing in October 2028 Series 67760HHF4.
The Municipal Securities Rulemaking Board (MSRB) amended its Rule G-34, on CUSIP numbers. Among other things, the amendments codify the Board’s longstanding interpretive view that BDs are “underwriters” when acting as placement agents of private placements of municipal debt securities, including direct purchases.2
Also, the amendments place a requirement on non-dealer municipal advisors to obtain a CUSIP number when advising an issuer on a competitive underwriting.
That said, the revised rule provides an exception. When dealers and municipal advisors in competitive sales reasonably believe (e.g., by getting a written statement) that the present intent of a purchaser is to hold the bonds to maturity (or earlier redemption or mandatory tender3), the requirement to obtain a CUSIP number may be waived.
Clarification of the Definition of Underwriter
The amendments will delete the existing definition of “underwriter” and instead cross reference to the term “underwriter” as it is defined in Exchange Act Rule 15c2-12(f)(8)4, thus adding wider and clearer understanding of the term as understood by most municipal securities professionals.
All-Inclusive Application of the CUSIP Number Requirements
The amendments will apply the CUSIP number requirements to all municipal advisors advising on a competitive sale of a new issue of municipal securities rather than just some of them. The Board is now of the view that requiring some municipal advisors to obtain CUSIP numbers in competitive sales creates problems.
The amendments also clarify the that a municipal advisor in a competitive sale must make an application for a CUSIP number no later than one business day after dissemination of a notice of sale “or other such request for bids.”
“A financial advisor shall make an application by no later than one business day after dissemination of a notice of sale. Such application for CUSIP number assignment shall be made at a time sufficient to ensure final CUSIP numbers assignment occurs prior to the award of the issue.”
“A municipal advisor advising the issuer with respect to a competitive sale of a new issue of municipal securities shall make an application by no later than one business day after dissemination of a notice of sale or other such request for bids. Such application for CUSIP number assignment shall be made at a time sufficient to ensure final CUSIP number assignment occurs prior to the award of the issue.”
The additional language looks to ensure the timing of the application for a CUSIP number where bids are sought in a competitive sale of municipal securities using documentation other than a traditional notice of sale. A municipal advisor in a competitive transaction that applies for the CUSIP number no later than one business day following the distribution of a notice of sale or other request for bids helps safeguard that trading in the new issue can begin without delay following the award.
Provides an Exception to the Requirements in Certain Circumstances
Some banks in direct purchase transactions are reluctant to engage in such a transaction if a CUSIP number is required because some bank purchasers take the view that the transaction is a loan for certain bank accounting purposes. This makes the bank less likely to participate in the financing and hindering the dealer’s ability to directly place the municipal securities, leaving issuers with fewer financing options.
Likewise, where a municipality is purchasing municipal securities to secure its other municipal debt obligations, such as in an advance refunding, there is an expectation that the underlying municipal securities being purchased are intended to be held—not traded in the secondary market.
A dealer (or municipal advisor in a competitive sale) is not required to apply for a CUSIP number in the case of sales of municipal securities to a bank, that is purchasing the municipal securities with funds that are securing or paying, the municipality’s debt issue (e.g., state revolving fund or bond bank), and the dealer (or municipal advisor in a competitive sale) reasonably believes (e.g., by obtaining a written representation) that the purchaser has the present intent to hold the municipal securities to maturity or earlier redemption or mandatory tender.
The Board expects dealers and municipal advisors to work up policies and procedures for arriving at a reasonable belief as to an investor’s intent. Obtaining a written representation from the purchaser is just one example for determining the purchaser’s present intent.
1 CUSIP identifying numbers are provided by CUSIP Global Services, which is managed on behalf of the American Bankers Association by S&P Global Market Intelligence.
2 In a competitive sale, bids from interested dealers are opened at the appointed time and place as advertised in trade periodicals, and the issuer awards the sale to the successful (lowest) bidder that meets all the requirements laid out by the issuer and its advisor. In a negotiated sale, an issuer selects its underwriter following a negotiation of the offering terms. A newer third method to sell bonds is by direct purchase by banks or other financial institutions. Bank direct purchases (BDPs) are an increasingly popular alternative to competitive or negotiated sales.
3 Early redemption may occur on bond issuers’ or bondholders’ intentions. For example, a callable bond may be bought back (called) by the issuer often at a premium to compensate the bond owner for lost interest. This happens when interest rates are declining, and the municipality is looking to refinance its outstanding expensive debt. Most bonds are callable. Occasionally an issuer may provide a put feature giving the bond owner the right to “put” or compel the issuer to repay the bond before maturity typically at par thus allowing the bond owner to reinvest in higher yielding bonds.
4 Exchange Act Rule 15c2-12(f)(8) defines “underwriter” as any person who has purchased from an issuer of municipal securities with a view to, or offers or sells for an issuer of municipal securities in connection with, the offering of any municipal security, or participates or has a direct or indirect participation in any such undertaking, or participates or has a participation in the direct or indirect underwriting of any such undertaking; except, that such term does not include a person whose interest is limited to a commission, concession, or allowance from an underwriter, broker, dealer, or municipal securities dealer not in excess of the usual and customary distributors' or sellers' commission, concession, or allowance.
POINT OF VIEW: DOL Fiduciary Rule DOA, SEC Steps Up
Disclaimer: William R. James is a Senior Editor at Kaplan Financial Education. The opinions expressed in this article are solely those of the author based on personal research and observations. They should not be viewed as legal advice.
Commission Approved Best-Interest Proposal for Brokers
The continuous effort to roll back and stall the Department of Labor’s fiduciary rule by the Trump White House and a sizeable number of influential plaintiffs winning in circuit courts finally worked. Last month the DOL told CNBC, following an order by the Fifth Circuit to vacate, that pending further review it will not be enforcing the 2016 fiduciary rule. With the SEC Commissioners 4-1 approval of its “best interest” proposal on April 18, it appears that the final nail was hammered into the coffin of the Obama-era DOL’s effort to regulate certain advice to pension funds.
The 1,000-page DOL proposal was the sum of years of effort to reign in and regulate the retirement plan advisory business provided by brokers. However, both the Fifth and Tenth Circuits found it wanting, ordering the DOL to vacate the rule, declaring it unreasonable—that it constituted "an arbitrary and capricious exercise of administrative power.” The Department of Labor’s reach by looking to transform and regulate in entirely new ways many thousands of financial services providers and insurance companies for retirement plans, falls outside of what is reasonable. Stepping up quickly, the SEC announced its own long-anticipated alternate rule. Known as Regulation Best Interest, the Commission took a decidedly different approach.
SEC Chairman Clayton voiced the concern of many that there needs to be “clarity and harmony to investment advisor, broker-dealer standards of conduct.” SEC Commissioner Michael Piwowar, who along with Clayton voted in favor of the Best Interest proposal declared it to be “a solid building block...it imposes a new best-interest standard.” While he noted that he has some misgivings, he added, “No longer can people say the SEC needs to do something about this [standard of conduct].” During the obligatory 90-day comment period, Piwowar is hoping to hear comments as to whether the new regulation increases compliance costs for broker-dealers. Commissioner Robert Jackson stated the “need for SEC action has been even more urgent.”
The Bullet Has Been Bitten
I think it’s safe to say without being hyperbolic, that the dollar figure spent by the brokerage industry to comply with a now lifeless rule is staggering. A SIFMA study put the number at $4.7 billion in start-up costs to comply with the anticipated DOL rule. With that investment, it’s not surprising that sizeable broker-dealer advisors look to hang on to the momentum and get something for their money, particularly since they were moving in the fiduciary direction in the first place, seeing it as the business model of the future regardless of what happened to the DOL rule. They’ve bitten the bullet, done a lot of work, and aren’t looking to change anything at this point. Though admittedly, no one can suppress a smile knowing that the specter of class-action lawsuits, no matter how watered down by exemptions or private right of action, no longer looms.
The Commission’s best-interest rule drubbed out the legal ax that hung over the necks of broker-dealers and their associated persons who failed to pick up the nuances of the DOL’s fiduciary rule. The DOL provided a path for customers to sue brokers in class-action lawsuits. The SEC-proposed rule has no such blade in it, suggesting to careful readers that FINRA’s Code of Arbitration will remain the backbone to dispute resolution. I expect disciplinary action will find a way into further review during the 90-day comment period on the new rule.
Working more closely in a fiduciary capacity, including a clear explanation of investments and fees with customers, is a path that works with the fiduciary and best interest standards. The suitability standard is still in play, but its days are numbered by rule and business practice. Bulge-bracket and RIA firms were acting as fiduciaries well before the DOL launched its rule, and those that were gearing up for it will continue as though the Fiduciary Rule was still in force.
Belying the Commission’s nearly 1,000-page proposal that suggests to the mind a comprehensive, batten down the hatches, weighty rule, it appears to offer a gentler approach than the DOL. By proposing a uniform standard of conduct for broker-dealers and advisers in light of their different relationship types and models for providing advice, the Commission offers a deft touch to regulation. Brokers would be required to disclose conflicts of interest and look to eliminate or “mitigate” them, but the Commission does not intend to require brokerages to mitigate every material conflict of interest. That means the door is still open for a carefully applied sales contest. The SEC has stated that, “We do not intend for our standard to prohibit a broker-dealer from having conflicts when making a recommendation."
Reawakened Market Participation
With this somewhat more relaxed approach, the door may hopefully swing the other way, offering significant players that earlier withdrew from the market of servicing retirement investors due to the DOL’s heavy-handed approach a way and desire to get back in. It is possible these former players may reconsider their departure. I hope so.
How Series 6, 79, and 99 Examinations Have Changed Now that the SIE Exam is Live
Now that all new representative-level applicants must take the Securities Industry Essentials (SIE) exam, the Series 6, 79, and 99 exams are now specialized knowledge examinations (a revised representative-level qualification examination) for their particular registered roles. As a result, these exams test knowledge relevant to the day-to-day activities, responsibilities, and job functions of those individuals.
Series 6 Breakdown
FINRA has changed the major job functions that are performed by an Investment Company and Variable Contracts Products Representative (Series 6):
- Function 1: Seeks Business for the Broker-Dealer from Customers and Potential Customers, 12 questions, 24% of exam items
- Function 2: Opens Accounts after Obtaining and Evaluating Customers’ Financial Profile and Investment Objectives, 8 questions, 16% of exam items
- Function 3: Provides Customers with Information About Investments, Makes Suitable Recommendations, Transfers Assets and Maintains Appropriate Records, 25 questions, 50% of exam items
- Function 4: Obtains and Verifies Customers’ Purchase and Sales Instructions; Processes, Completes and Confirms Transactions, 5 questions, 10% of exam items
The fee for the Series 6 is $40 (when combined with the $60 fee for the SIE, it is the same $100 fee as previously), and the exam has 50 scored questions. Consistent with FINRA’s practice of including “pretest” questions on examinations, the Series 6 examination includes five additional, unidentified pretest questions that do not count towards the candidate’s score. The amount of time candidates have to complete the examination is 1 hour and 30 minutes.
All candidate test scores are placed on a common scale using a statistical adjustment process known as equating. Equating scores to a common scale accounts for the slight variations in difficulty that may exist among the different sets of exam items (questions) that candidates receive. This allows for a fair comparison of scores and ensures that every candidate is held to the same passing standard regardless of which set of questions they received. Currently, a score of 70 percent is required to pass the examination.
Download A Candidate's Complete Guide to the New SIE Exam now to learn more about the new proposed licensing process and SIE exam content.
Series 79 Breakdown
The Series 79 exam is designed to assess the competency of entry-level Investment Banking Representatives and seeks to measure the degree to which each candidate possesses the knowledge, skills, and abilities needed to perform the critical functions of an Investment Banking Representative.
FINRA has reorganized the content outline by dividing it into three major job functions that are performed by an Investment Banking Representative. The following are the three major job functions, denoted Function 1 through Function 3, with the associated number of questions:
- Function 1: Collection, Analysis and Evaluation of Data, 37 questions, 47% of exam items
- Function 2: Underwriting and New Financing Transactions, Types of Offerings and Registration of Securities, 20 questions, 27% of exam items
- Function 3: Mergers and Acquisitions, Tender Offers and Financial Restructuring Transactions, 18 questions, 24% of exam items
The questions on the revised Series 79 examination emphasize tasks such as advising on or facilitating debt or equity offerings through a private placement or public offering, and advising or facilitating mergers and acquisitions, tender offers, financial restructurings, and asset sales.
Each function also includes specific tasks describing activities associated with performing that function. There are three tasks (1.1–1.3) associated with Function 1; six tasks (2.1–2.6) associated with Function 2; and six tasks (3.1–3.6) associated with Function 3. For example, one such task (Task 1.3) is conducting due diligence. Further, the content outline lists the knowledge required to perform each function and associated tasks (e.g., due diligence processes on both the buy- and sell-sides). In addition, where applicable, the content outline lists the laws, rules, and regulations a candidate is expected to know to perform each function and associated tasks (e.g., SEC Rule 135a).
The fee for the Series 79 exam is $245 (when that is combined with the $60 SIE fee, it adds up to the fee for the former Series 79 exam), and each candidate’s exam consists of a total of 85 questions (75 scored and 10 unscored). Also included are 10 additional, unidentified pretest items that do not count toward the candidate's score. Candidates are allowed 2 hours and 30 minutes to complete the Series 79 exam.
The passing score for the Series 79 exam is 73%. All candidate test scores are placed on a common scale using a statistical adjustment process known as equating. Equating scores to a common scale accounts for the slight variations in difficulty that may exist among the different sets of exam items that candidates receive. This allows for a fair comparison of scores and ensures that every candidate is held to the same passing standard regardless of which set of exam items they received.
Series 99 Breakdown
The Series 99 content outline is divided into two major job functions that are performed by an Operations Professional. The two major job functions, denoted Function 1 and Function 2, with the associated number of questions are:
- Function 1: Knowledge Associated with the Securities Industry and Broker-Dealer Operations, 35 questions, 70% of exam items
- Function 2: Professional Conduct and Ethical Considerations, 15 questions, 30% of exam items.
The questions on the Series 99 examination emphasize tasks. There are nine tasks (1.1–1.9) associated with Function 1 and four tasks (2.1–2.4) associated with Function 2.
For example, one such task (Task 1.1) is opening and maintaining accounts. Further, the content outline lists the knowledge required to perform each function and associated tasks (e.g., types of retail, institutional, and prime brokerage customer accounts). In addition, where applicable, the content outline lists the laws, rules, and regulations a candidate is expected to know to perform each function and associated tasks [e.g., SEA Rule 15c3-3 (Customer Protection—Reserves and Custody of Securities)].
The fee for the Series 99 exam is $40 (when combined with the $60 fee for the SIE, it is the same $100 fee as previously), it has 50 questions, and the test time is 1 hour and 30 minutes (90 minutes). Currently, a score of 68 percent is required to pass the examination. All candidate test scores are placed on a common scale using a statistical adjustment process known as equating. Equating scores to a common scale accounts for the slight variations in difficulty that may exist among the different sets of exam items that candidates receive. This allows for a fair comparison of scores and ensures that every candidate is held to the same passing standard regardless of which set of exam items they received.
Consistent with FINRA’s practice of including “pretest” questions on examinations, the Series 99 examination includes five additional, unidentified pretest questions that do not count towards the candidate’s score.
The exam consists of 50 multiple-choice items, and each item consists of four answer choices.
Want to Further Your Knowledge?
Now that you've gotten a deeper look at the new Series 6, 79, and 99 exams, learn more about how the SIE exam has impacted the Series 7 licensing exam.
POINT OF VIEW: The DOL’s Fiduciary Rule–Vacated by The Fifth
Disclaimer: William R. James is a Senior Editor at Kaplan Financial Education. The opinions expressed in this article are solely those of the author based on personal research and observations. They should not be viewed as legal advice.
The Ongoing Suitability v. Fiduciary Standard Clash
The Fifth and Tenth Circuit Courts Weigh In
Over the past year, Kaplan has kept you apprised of the potential impact of the U.S. Department of Labor (DOL) fiduciary rule. We have looked to decipher the rule and answer your questions, particularly regarding Investment Adviser Registration. We have given you background starting with the Employee Retirement Income Security Act of 1974 (ERISA), the statute that governs the non-tax aspects of the implementation and operation of an employee pension benefit plan; as well as the Employee Benefits Security Administration (EBSA) division of the U.S. Department of Labor (DOL), which is tasked with the administration of ERISA.
In 1975 the EBSA issued guidance interpreting the statutory definition of investment advice fiduciary found in ERISA. That guidance remains in effect today. That same EBSA began the process of updating the regulatory definition of investment advice fiduciary by issuing proposed regulations in 2010 that looked to substantially change the regulatory definition of investment advice fiduciary in effect for 43 years.
In short, over the past eight years, the Federal Government has looked to promulgate rules and laws that impact an enormous swath of American commerce at a compliance burden estimated by the government to cost somewhere near $32 billion over ten years. To say nothing of the unsettled nerves knowing that a fresh army of federal regulators will be descending to enforce the new rule with all the accompanying fines for infractions small and large. The comprehensive and apparently capricious rule (its treatment of variable and fixed index annuities) appears to be open for plenty of interpretation. This long developing DOL regulatory scheme has hit more than one roadblock.
The Fifth Circuit Court of Appeals
The DOL’s 1,000-page fiduciary rule is seen by the plaintiffs in a recent case heard by the Fifth Circuit as an undiscovered country of regulatory bear traps. The Chamber of Commerce, SIFMA, and nearly two dozen other securities and insurance heavyweights argued against the U.S. DOL that the rule is corrosive to confidence and trust (ironically the heart of fiduciary behavior) between the lawmakers and the governed. Predictably, the DOL’s pledge to alleviate the concerns of regulated companies, particularly regarding vexing interpretative issues that will arise by offering them the same “broad assistance for regulated parties on the Affordable Care Act regulations,” did little to sooth apprehensions by the plaintiffs in this month’s successful case against the Department of Labor’s fiduciary rule.
The Fifth Circuit Court of Appeals agreed with three substantive plaintiff groups that 50 years of legal practices in the trillion-dollar retirement markets is, to all reasonable minds, settled. That the Department of Labor’s reach in April 2016 by looking to transform and regulate in entirely new ways many thousands of financial services providers and insurance companies for retirement plans, falls outside of what is reasonable and challenges the DOL on its ability to issue rules that fundamentally transforms settled legal practices in the financial services and insurance industries.
“Settled law” or “black letter law” is an expression that has come into common parlance in recent years as it is often used in legal arguments to add gravitas. The expression is sometimes used in-judiciously to argue for those laws and rules passed relatively recently, spurring controversy that works to unravel the so-called settled issue. Suggesting settled law, however, is persuasive only if in fact it is proven to be so over time. Settled law as used by the financial services and insurance industry was favorably argued to the Fifth Circuit.
The Tenth Circuit Court of Appeals
Within days of the decision to vacate by the Fifth, the Tenth Circuit ruled against Market Synergy Group in its lonely bid to argue that it would never be able to reach the BICE, the Best Interest Exemption, and that the court should provide a door for them to work under an “84–24 Exemption,” perceived to be a workaround for commission-based compensation customarily used in the sale of fixed-index annuities. The Prohibited Transaction Exemption (PTE 84-24) permits traditional, variable commission compensation, but the purchase by a plan or IRA of a variable annuity contract or indexed annuity contract is carved out of PTE 84-24, leaving those in that industry scratching their heads.
Where From Here?
Soon after taking the oath of office, President Donald Trump asked for a review of the rule, immediately delaying implementation until June 9, 2017, with a transition period for some exemptions extending to January 1 of this year. Full implementation was pushed back to July 1, 2019.
The Fifth Circuit Court of Appeals, vacating the rule as unreasonable and that it constitutes "an arbitrary and capricious exercise of administrative power,” matched with the Tenth Circuit’s decision in mid-March, throws this fiduciary rule into a harsh light. Circuit courts at odds with other circuit courts lines this rule up in the gun sights of a U.S. Supreme Court appeal. The DOL’s next stop could be en banc to the Fifth to hear again or up to the Supreme Court. Then again, it may be dropped entirely.
On March 19, the DOL told CNBC that "pending further review" it "will not be enforcing the 2016 fiduciary rule." I sense that the DOL will yield to the Securities and Exchange Commission to run with this ball. SEC Chairman Clayton has not shied away from his thoughts that there needs to be “clarity and harmony to investment advisor, broker-dealer standards of conduct.” With a full complement of commissioners, and the vacuum caused by the vacating Fifth Circuit, and a warmer feeling generally throughout the financial services industry that the Commission should have had their oar in this water from the beginning, we can almost certainly look for a complete redo of the Fiduciary Rule under the banner of the SEC in the year ahead.
How Series 7 Has Changed Since the SIE Exam Launched
With the advent of the Securities Industry Essential (SIE) exam, FINRA has restructured their examination programs into a new format. All new representative-level applicants will be required to take the SIE exam, and a tailored, specialized knowledge examination (a representative-level qualification examination) for their particular registered role.
As part of the 2018 restructuring process, FINRA has created a tailored top-off examination for earning the Series 7 license. The new Series 7 tests knowledge relevant to the day-to-day activities, responsibilities, and job functions of general securities representatives.
Download A Candidate's Complete Guide to the New SIE Exam now to learn more about the new proposed licensing process and SIE exam content.
Revised Series 7 Exam Breakdown
Fees—The cost of the exam is $245. (When you combine it with the $60 fee for the SIE, the cost becomes the same as in the past.)
Number of Questions—The exam consists of 125 multiple-choice questions (down from 250), and each question consists of four answer choices. Each candidate’s exam includes 10 additional, unidentified pretest questions that do not contribute toward the candidate's score. The pretest questions are randomly distributed throughout the exam. Therefore, each candidate will see a total of 135 questions (125 scored and 10 unscored).
Allowed Time to Complete Exam—Candidates are allowed 3 hours and 45 minutes to complete the Series 7 exam. (The exam used to be 6 hours.)
Scoring—The passing score is 72%. (This is the same as the passing score for the previous exam.) Candidate test scores are placed on a common scale using a statistical adjustment process known as equating. Equating scores to a common scale accounts for the slight variations in difficulty that may exist among the different sets of exam questions a candidate receives. This allows for a fair comparison of scores and ensures that every candidate is held to the same passing standard regardless of which set of exam questions they received.
Content Outline—FINRA has also made changes to the major job functions that are done by a General Securities (Series 7 licensed) Representative. The following are the revised job functions (1 through 4) with the associated number of questions:
|Function Description||% of Exam||# of Questions|
|1 - Seeks Business for the Broker Dealer from Customers and Potential Customers||7%||9|
|2 - Opens Accounts after Obtaining and Evaluating Customers' Financial Profile and Investment Objectives||9%||11|
|3 - Provides Customers with Information About|
Investments, Makes Suitable Recommendations,
Transfers Assets and Maintains Appropriate Records
|4 - Obtains and Verifies Customers’ Purchase and Sales|
Instructions and Agreements; Processes, Completes
and Confirms Transactions
In each function, the questions on the Series 7 examination emphasize “tasks.” There are two tasks (1.1–1.2) associated with Function 1, four tasks (2.1–2.4) associated with Function 2, four tasks (3.1–3.4) associated with Function 3, and four tasks (4.1–4.4) associated with Function 4.
For example, one such task (Task 1.1) is specified as: “Contacts current and potential customers in person and by telephone, mail and electronic means; develops promotional and advertising materials and seeks appropriate approvals to distribute marketing materials.”
Further, the content outline lists the knowledge required to perform each function and associated tasks (e.g., Standards and required approvals of public communications) and lists the laws, rules, and regulations a candidate is expected to know to perform each function and associated tasks (e.g., FINRA Rule 2210—Communications with the Public).
Looking for more information?
The introduction of the SIE exam will also have an effect on Series 6, 79, and 99. Learn more about the changes coming to these exams in this article. You can also check out all the education and exam preparation packages Kaplan offers for securities licensing here.
FINRA Rule 2165 and Update to Rule 4512 to Protect Seniors Now Effective
In February 2017, the Financial Industry Regulatory Authority (FINRA) proposed new FINRA Rule 2165 (Financial Exploitation of Specified Adults) and amendments to FINRA Rule 4512 (Customer Account Information). The Securities Exchange Commission (SEC) approved them both in March 2017. The new rules became effective on February 5, 2018.
These two rules tie together topics of concern FINRA has expressed over several years as a way to ensure firms pay closer attention to seniors, and potentially other specified adults, who have been described as “easy targets,” underserved and, most often, the main victims of fraud and abuse.
Rule 2165, at its core, allows a securities firm to place a temporary hold on a disbursement of funds or securities from the account of a specified adult if the firm has a reasonable belief a questionable request has been made regarding financial exploitation of a customer.
The amendments to Rule 4512 require firms to make reasonable efforts to implement a “trusted contact” system into their customer accounts.
We believe these two rules together will not only represent best practice planks, which will impact the industry in a much-needed positive direction, but will also be an important consideration for all those preparing to take securities exams. The depth of support needed to show compliance on an individual exam is yet to be determined. However, based on the current regulatory framework and an aging population, their significance cannot be overlooked.
Any firm with retail customers is expected to abide by the tenants of the regulations, but due to the fact these are new rules, they may not have made it into our printed material in time to be added to the study material. As such, we are preparing to add this content into our digital delivery systems via updates on the students online Dashboard.
New FINRA Rule 2165—Placing a Temporary Hold on Disbursements
New Rule 2165 permits a member that reasonably believes that financial exploitation
- has occurred,
- is occurring,
- has been attempted,
- or will be attempted…
to place a temporary hold on the disbursement of funds or securities from the account of a “specified adult” customer.
The rule does not mandate or require a firm to withhold a disbursement of funds or securities. It actually creates a “safe harbor” from activities which, without new rule 2165, would otherwise be violations when withholding, even temporarily, a requested disbursement from a client’s account. In essence, it allows the firm to step back from a disbursement request and ask, “Does this request fall into what is a normal or expected request”? In other words, when members exercise discretion in placing temporary holds on disbursements of funds or securities from the accounts of specified adults, the new rule offers a response.
A couple of definitions are useful to see as well, since they are new terms to the regulations.
- Specified Adult:
- A natural person age 65 and older or (B) a natural person age 18 and older who the firm reasonably believes has a mental or physical impairment that renders the individual unable to protect his or her own interests. The firm’s decision may be based on the facts and circumstances observed in the member’s business relationship with the person.
- Financial Exploitation:
- (A) The wrongful or unauthorized taking, withholding, appropriation, or use of a specified adult’s funds or securities; or
- (B) any act or omission taken by a person, including through the use of a power of attorney, guardianship, or any other authority, regarding a specified adult, to: (i) obtain control, through deception, intimidation or undue influence, over the specified adult’s money, assets or property; or (ii) convert the specified adult’s money, assets or property.
It is important to note, a temporary hold pursuant to the rule may be placed on a particular suspicious disbursement(s), but not on other, non-suspicious disbursements. Rule 2165 does not apply to transactions in securities. For example, Rule 2165 would not apply to a customer’s order to sell his shares of a stock. However, if a customer requested that the proceeds of a sale of shares of a stock be disbursed out of his account at the member, then the rule could apply to the disbursement of the proceeds where the customer is a “specified adult” and there is reasonable belief of financial exploitation.
Highlights of Rule 2165
- If a member places a temporary hold, Rule 2165 requires that the member immediately initiate an internal review of the facts and circumstances.
- The rule requires the member to provide notification of the hold and the reason for the hold to the trusted contact person and all parties authorized to transact business on the account.
- The temporary hold authorized would expire not later than 15 business days after the date that the member first placed it, unless otherwise terminated or extended.
- The rule permits the member to extend the temporary hold for an additional 10 business days.
Trusted Contact Person—Amendments to Rule 4512
The amendments to Rule 4512 require members to make reasonable efforts to obtain the name of and contact information for a trusted contact person upon the opening of a non-institutional customer’s account or when updating account information for a non-institutional account in existence prior to the effective date of the amendments. The trusted contact person is intended to be a resource for the member in administering the customer’s account, protecting assets, and responding to possible financial exploitation.
The amendments do not prohibit members from opening and maintaining an account if a customer fails to identify a trusted contact person, as long as the member makes reasonable efforts to obtain the information. Asking a customer to provide the name and contact information for a trusted contact person ordinarily would constitute reasonable efforts to obtain the information and would satisfy the rule’s requirements.
Securities Industry Essentials (SIE) Exam Frequently Asked Questions for Businesses
The introduction of FINRA’s new Securities Industry Essentials (SIE) in October 2018 has dramatically changed the securities licensing process. We’ve assembled and answered this list of the most common questions we’ve been fielding from partner firms in recent months.
How does the SIE exam impact our firm’s recruitment efforts?
There are many potential benefits of FINRA restructuring the securities exams, particularly for firms who want to be more efficient in their recruiting and onboarding processes. Your firm now has options when onboarding new reps, including making the SIE exam a condition of employment, having new hires pass the SIE exam prior to taking a specialized knowledge exam, or asking new hires to take both exams together.
How does the SIE exam affect our onboarding process?
Candidates now have to pass multiple exams before registering with FINRA, which may extend the onboarding process to account for exam scheduling, testing, and waiting periods for retakes.
How are our current license holders impacted by the introduction of the SIE exam?
Based on FINRA Regulatory Notice 17-30, the following individuals are considered to have passed the SIE exam:
- Individuals who registered as representatives before October 1, 2018, and who continue to maintain those registrations on or after October 1, 2018.
- Individuals whose registration as a representative was terminated between October 1, 2014 and September 30, 2018, provided they re-register as a representative within four years from the date of their last registration
All other individuals seeking representative-level registration must pass the SIE exam, unless they obtain a waiver.
How can our firm strategically use this change to our advantage?
Thinking strategically, the SIE exam allows firms to create pipelines of qualified candidates, reduce onboarding and recruiting costs, increase speed to production, and build more agile and effective workforces.
Can our firm partner with an education provider to provide SIE exam prep?
Yes. A number of training providers offer exam preparation courses and programs designed to assist students with passing the new SIE exam and top-off exams. Kaplan currently offers classroom, online, and blended exam prep programs to more than 90,000 successful candidates annually. These same proven approaches are being used to implement SIE-related programs within more than 1,500 universities, many of which Kaplan is currently partnering with to offer CFP® certification education and CFA®-based curricula, as well as more than 1,000 corporate partners. Our integrated strategy is to connect these universities with potential employers to provide sources of highly qualified candidates, while also preparing individuals to pass the SIE and top-off exams and supporting their future careers in the securities industry.
Can I use a candidate’s passing of the SIE exam as a reliable predictor of how they will perform on their FINRA series exams?
While candidates passing of the SIE exam can prove mastery of basic industry knowledge and demonstrate proficiency in handling a high-stakes exam experience, it is too early to determine any correlation on how they will perform on their respective top-off exams.
How should we adapt our internal training program and process to accommodate the SIE exam?
You have different options for onboarding new hires:
● Hire applicants who have already successfully passed the SIE exam.
● Onboard individuals and require them to take the SIE exam prior to top-off exam.
● Request new hires to take both the SIE and top-off exams together.
Additionally, many of the firms Kaplan partners with on corporate training programs have expressed an interest in using the SIE exam for their non-registered administrative employees. Having a better understanding of the industry helps create more agile and effective workforces, which is key to growth and competitive positioning.
What are the benefits of the changes for companies?
By creating pipelines of candidates who have demonstrated mastery of fundamental securities-related knowledge, firms are able to reduce costs associated with recruiting and licensing. Most importantly, firms can mitigate the drain on productivity when bringing on new hires. Firms that currently have, or plan to develop, relationships with local universities have an advantage in leveraging the benefits of this new exam. As noted previously, many of the firms we have talked to are interested in having their administrative staff prepare and sit for the SIE exam as well.
What are the challenges caused by the introduction of the SIE exam?
Many firms are concerned that individuals who have passed the SIE exam will misrepresent their qualifications with investors. In response, FINRA plans to implement SIE Rules of Conduct that require individuals to attest that they are not qualified to conduct securities business with the public until they meet the additional requirements of being associated with a firm and passing a specialized knowledge exam.
Additionally, candidates now have to pass multiple exams before registering with FINRA, which may extend the onboarding process to account for exam scheduling, testing, and waiting periods for retakes.
Finally, for those firms who want to hire individuals without the SIE credential, the total exam fees will likely stay the same. For example, the exam fee for the current Series 7 exam is $305. The SIE exam fee is $60, and the exam fee for the new Series 7 top-off exam will be the balance ($245) of the current fee.
We hope this article has helped clear up confusion and answer any questions you have about the SIE Exam, and how it affects your firm. If you're looking for more information, you can access our SIE Information Center. We've also created FAQs for candidates and universities to answer SIE-specific questions.
Securities Industry Essentials (SIE) Exam Frequently Asked Questions for Universities
FINRA introduced the new Securities Industry Essentials (SIE) exam on October 1, 2018. The SIE exam is a game-changer for universities and students hoping to jumpstart a career in financial services before they graduate. Kaplan has been following the news ever since FINRA first began talking about it. Along the way, our university partners have relied on us for the latest information on the SIE exam, and how it will impact their school and students. We developed this article to provide answers to the questions we hear most often—and to keep you and the rest of your faculty informed.
What Is the Securities Industry Essentials (SIE) exam?
The SIE exam is FINRA's new general industry exam. It tests basic knowledge such as products, risks, the structure and function of the securities industry and its regulatory agencies, and regulated and prohibited practices. The SIE exam is the first step for anyone earning a Series 6, 7, 22, 57, 79, 82, 86/87, or 99 license, if they do not already possess one of those licenses. Passing the SIE exam alone does not qualify an individual for registration with FINRA. They also need to pass a specialized knowledge qualification exam (or "top-off") applicable to the desired job function with a firm, and meet other registration requirements. FINRA calls the SIE and the top-off exams "corequisites," which means that both have to be passed to earn the license, but can be taken in any order. In other words, it's possible to take a top-off exam before the SIE, but they will still have to take the SIE.
What opportunities does the Securities Industry Essentials (SIE) exam offer a university?
This exam is ideal for universities to implement as part of their curriculum or as a professional development program. Doing so could increase job placement opportunities for students, add a new revenue stream, and enhance relationships with financial services employers.
What do my students need to know about the Securities Industry Essentials (SIE) exam?
With a low exam fee ($60) and no firm sponsorship requirement, the SIE is ideal for university students who want a headstart in a financial services career. By proving their mastery of basic industry knowledge and demonstrating that they can pass a high-stakes examination, students will stand out to potential employers. We’ve created a FAQ for candidates as well, designed to answer all of the questions your students might have about the new exam.
How will the SIE exam impact our students?
Individuals who are able to add the SIE to their resume and, more importantly, demonstrate general industry knowledge, will stand out to potential employers during job interviews and within post-hire training programs.
What are the prerequisites for the SIE exam? Can students take it any time?
The SIE exam is open to anyone aged 18 and older, including students and prospective candidates interested in demonstrating basic industry knowledge to potential employers. Because you are not required to be sponsored to take this exam, students do not need to be hired by a firm in order to sit for this entry level exam.
Which topics will be covered on the new SIE exam?
The range of topics covered on the SIE exam include:
- Knowledge of Capital Markets
- Understanding Products and their Risks
- Understanding Trading, Customer Accounts and Prohibited Activities
- Overview of the Regulatory Framework
Will any topics be added to the top-off exams now that topics are being removed to create the SIE exam?
The revised representative-level qualification exams will test knowledge relevant to day-to-day activities, responsibilities, and job functions of representatives. In February 2018, FINRA released the content outlines for the top-off exams. In additional articles, we have outlined the breakdown of each major exam and explained the differences between current and future exams for Series 7, as well as the Series 6, 79, and 99 Exams.
Could our university offer SIE exam preparation as part of our curriculum?
Yes! In fact, Kaplan partners with universities to offer Securities Licensing Exam Prep to students, alumni, and their local community. Through these partnerships, schools enter into a Marketing Service Agreement and receive payment in exchange for promoting the courses. Kaplan builds co-branded custom portals for students to enroll. In addition to SIE Exam Prep, partners are also able to offer additional Kaplan exam prep packages for other licensing exams, such as Series 65.
How does the SIE exam prep course fit into an undergraduate business degree?
A career opportunity is the ultimate goal for most undergraduate business students. Building a curriculum around the topics covered in the SIE exam can fast-track your students’ path to earning a series license and starting a career in finance. Kaplan has taken these topics and has incorporated them into a simple path to teaching securities industry essentials in your financial course. These topics include:
- Knowledge of Capital Markets
- Understanding Products and their Risks
- Understanding Trading, Customer Accounts and Prohibited Activities
- Overview of the Regulatory Framework
Kaplan will work with your university to offer SIE Exam Prep and receive the course curriculum. We build co-branded custom portals for university partners' students to purchase materials, and allow you to manage the program. To learn more about the SIE Exam, access our SIE Information Center.
We hope this article has helped clear up confusion and answer any questions you have about the SIE Exam, and how it will affect your university. If you're looking for more information, we've also created FAQs for candidates and businesses to answer SIE-specific questions.
How 2018 Tax Changes Impacted Securities Qualifications Exams
In December 2017, President Trump signed the new federal tax code into law with most of its provisions taking effect on January 1. Although the new code is complicated, our subject matter experts have reviewed those parts of the code that could likely
impact qualification examinations.
We’ve detailed below some key elements of the new tax code that could affect the Series 6, Series 7, Series 52, Series 53, Series 24, Series 26, Series 10, Series 65 and Series 66. Our staff senses that it is unlikely that tax-related questions will change abruptly. It is more likely that old questions will be removed from test question banks and new questions integrated over time, keeping true to best practices for quality assurance. (An excellent way to be ready for any changes is to consider a prep package for the exams that are affected).
Thinking about a career in securities? Download our free eBook, Launching Your Securities Career, to get tips and advice from 100+ securities professionals.
Here are some possible elements of the new tax code that we expect to appear on the various qualification examinations at some point this year or next.
Earned income is still taxed the same...to the child. The change is to unearned income. Instead of being taxed at the parent’s top rate, everything above the $2,100 threshold is now taxed using the trust and estate’s table.
Section 529 Plans
For the first time, funds contributed to a Section 529 Plan will be permitted to be used for qualified expenses for K-12 education. Qualified expenses include tuition at an elementary or secondary public, private or religious school, for up to $10,000 per year.
Corporate Tax Rates
Instead of a graduated rate, there is a flat 21% tax applied to earnings of C corporations. The 70% dividends received exclusion now falls to 50%. This change applies if the ownership of the dividend-paying company is less than 20%.
Annual Gift Tax Exclusion
This exclusion increased from $14,000 to $15,000.
Other Changes for 2018
Even before the new tax bill was signed, there were some changes for 2018, mainly to retirement plan contributions. Here is a list of some of the items that have and haven’t changed:
Traditional and Roth IRAs
No changes made, either to the annual maximum contribution or the catch-up for those 50 and older.
Traditional and Roth IRA Phase-outs
The traditional IRA deductibility phase-out for those covered by employer-sponsored plans begins at $63,000 and ends at $73,000 for singles and $101,000 to $121,000 for married couples.
The Roth IRA eligibility phase-out begins at $120,000 and ends at $135,000 for singles, and $189,000 to $199,000 for married couples.
Maximum contribution is $55,000.
There are no changes.
401(k) and 403(b) Plans
Maximum elective deferrals increased to $18,500. Maximum with employer contribution rose to $55,000.
Maximum total contribution increase to $55,000.
Non-retirement Plan Changes Estate and Lifetime Gift Exclusion
This exclusion increased to $5.6 million per person with a married couple enjoying an exclusion of $11.2 million.
Top Tax Rates
The highest marginal tax rate reduced to 37% on a joint return, with taxable income exceeding $600,000 on a joint return and exceeding $500,000 on a single return.
Trust and Estate Taxation
The only change has been to the levels, and the concept remains the same—tax brackets are highly compressed. That is, once the trust’s (or estate’s) income exceeds $12,500, it is taxed at the new top rate of 37%.
This change affects those entities issuing a Schedule K-1, including S corporations, LLCs, partnerships and, although not technically a pass-through, sole proprietorships. There is a 20% deduction against qualified business income (QBI) subject to earnings limits for “service” business, such as financial planners, doctors, accountants, and lawyers (joint filers earning more than $315,000). The nature of the computation and various options is highly complicated.
Is it Necessary for Financial Advisors to Collect Badges?
Girl and Boy Scouts have long used a system of badges to help children and young adults learn necessary life skills. As we grow older and enter our professional lives, we are still searching for those badges. The easy analogy is the Armed Forces. They have a prescriptive formula on how to move up the ladder and gather additional badges or, in this case, stripes. Is the financial services industry any different?
This is a competitive business, and financial advisors need to differentiate themselves as they compete for customers. Many advisors try to differentiate themselves by piling on and earning many different badges. There are over 100 different financial planning designations. A fairly comprehensive list can be found on Wiser Advisor. However, many of these designations do not prepare advisors to give appropriate advice to their customers.
The list of topics and issues that face consumers are very comprehensive, complex, and interwoven. For example, it is impossible to make a decision to invest in a mutual fund without knowing how the allocation fits with the other investments, how much to invest given the various insurance needs, how the account should be titled to fit in the estate plan, and what the tax consequences are of these decisions. To many advisors, differentiation means collecting several badges that are easy to achieve, with the desire to display them on their business cards and company stationary.
Advisors can become Boy Scouts by making smart decisions on the quality and the educational value of the badges they choose to pursue. There are few barriers to entry into this field, and advisors need to differentiate themselves. But, the Boy Scouts (i.e., the advisors) understand the educational value of the topics taught and applied in a comprehensive designation’s curriculum. There is no doubt that advisors need a strong foundation in all financial planning topics, but that doesn’t mean that advisors have to provide services in all topical areas.
The educational need is the ability to recognize issues, educate the customer, and provide solutions. Advisors choosing a designation, such as CFP® certification, are better prepared to quarterback the client’s financial game plan. This is the badge that ultimately differentiates the advisor from the field and should be the start of the collection. This badge is necessary to be successful in the field and is the basis of the profession, just like the Boy Scout who learns to build a fire.
Sometimes, the issues in a client situation necessitate bringing in an appropriate specialist. Advisors should not feel threatened by using specialists. Their customers will appreciate the completeness of the advice, and not feel like the advice was all about product placement. Remember, growth in this business model is primarily achieved through referrals from existing customers, and this may be another opportunity to earn a badge. If advisors find they have a particular interest or niche client base they would like to serve better, they should seek out a new badge—find an additional designation that fits with the type of clients they are advising or wish to advise. Perhaps, a particular advisor finds that her client base is composed mainly of baby boomers or clients who run their own business. If a certain topic interests an individual advisor, she should become a specialist. Earning additional badges and gaining a reputation, as well as new customers, are surefire ways to grow a financial advising business.
Is CFP® certification right for you? Get a preview of our required education materials in this free download.
Become an Eagle Scout
But how does an advisor ultimately become an Eagle Scout? The Eagle Scouts recognize their skill gaps. These are generally not topical or technical knowledge gaps, but rather skills needed to become better advisors. The Eagle Scout seeks out professional development opportunities, often soft skills or additional competencies to earn a different type of badge. It is not about the collection of more designation badges to be displayed on a business card, but rather about the achievement of a new skill.
Education is changing. There is a movement by many institutions to offer Massive Open Online Courses (MOOCs). Entities such as the Bill & Melinda Gates Foundation are putting money into the development of MOOCs. Education opportunities are everywhere—traditional and non-traditional classrooms, technical knowledge and soft skills. The advisors seeking to be Eagle Scouts are constantly in search of these opportunities.
In the growing field of financial advising, advisors need to be able to distinguish themselves. They become a Cub Scout by achieving proper registration and licensing. This puts them in the pack. As a Boy Scout, one of the first skills they learn is how to build a fire and control it. Financial advisors are no different. So, I resoundingly say “yes” to the question, “Is it necessary for financial advisors to collect badges?”
CFP® certification shows advisors how to provide advice to their clients. It provides the necessary education and technical knowledge required to manage their client’s financial issues. Once they understand their business model, advisors should go out and seek additional badges to further educate themselves, as well as their customers. Continuing education is the key to helping them grow their business. But, remember, education can be either about gathering badges that are additional designations, or it can be about seeking out training to fill in skill gaps through a professional development curriculum. Advisors just need to figure out how to display their badges and get their message out to current and potential customers.
Will Robo Advisors Replace Financial Advisors?
Our team recently attended the think2perform Evolution of the Financial Advisory Practice conference in Minneapolis to learn more about key issues in financial advising. One major topic of focus was the place of robo advisors in the future of the industry. Will robo advisors replace financial advisors? ActFi’s Spencer Siegel enthusiastically argued that they will never replace financial advisors, but they can absolutely help an advisor create a better client experience. We wholeheartedly agree.
The rise of companies like Amazon and Uber has completely evolved the customer experience in recent years. As a result, the expectation that anyone can get anything they need right away in a couple of clicks on their phone or computer has expanded well beyond the retail market. Clients now expect their financial advisors to do things faster and provide a more convenient experience for them.
The Place for Robo Advisors
If customers expect rapid self-service, robo advisors can help fulfill that need. Robo advisors certainly fill a gap in the market for investors with less than $100,000 to manage by providing an affordable option for diversified investing with automatic rebalancing and tax loss harvesting. But, robo advisors cannot provide holistic financial planning services for their clients. They can’t help clients define goals and determine how to best meet those goals, nor can they provide tax or legal advice.
This is why a hybrid approach to financial advising, where advisors incorporate the use of robo advisors into their practice, is the best approach…and it benefits advisors just as much as it benefits customers. Robo advisors allow financial advisors to automate tasks like account opening, investment rebalancing, fund transfers between accounts, and tax-loss harvesting. These are tedious routine activities that you don’t want to spend your time on anyway because they take away from value-add activities you could instead be doing. Using robo advisors to handle repetitive tasks can also make financial advisors more palatable to younger investors because it demonstrates you're open to technology, something that's a big part of their lives.
Providing Holistic Financial Advice
This allows you to instead focus your attention on what value you can bring to a client—providing the human side to financial advising. Focusing on the more human aspects is can intrigue younger investors, who are appreciative of someone who appears to have a customer-focused approach rather than someone who is providing assets.
Then there are the 10,000 people who turn 65 in the United States every day. These baby boomer retirees will start using their retirement accounts for income; helping investors spend their retirement dollars smartly will be an increasingly important element of an advisor’s value proposition. An asset-based fee approach leads to a decline in revenue for the advisor when the client retires, and possible temptation to provide advice that serves the advisor’s interest ahead of the client’s interest is the result. An advice-based fee model, on the other hand, would reward the advisor for unraveling the complexity of converting money from retirement accounts into retirement income.
Should Advisors Be Afraid?
Should advisors be afraid of robo advisors as competition? Robo advisors will definitely succeed in helping a new market of clients who have previously gone mostly ignored by advisors anyway: those who make under $100,000. Otherwise, advisors have little reason to be nervous about robo advisors if they embrace the holistic financial advice approach, which make their human value-add more apparent.
If you've earned your CFP® Certification, it's never too early to start thinking about your 50 credits of continuing education. Although it's required to keep your certification, it also helps you stay current with trends like robo advising and advice-based feel models. You can get more information here.
New Securities Trader and Securities Trader Principal Registration Categories
The Securities and Exchange Commission recently approved FINRA’s request to replace the Series 55 Exam and registration category (Equity Trader) with the new Series 57 Exam (Securities Trader). Starting back in April, FINRA conducted a job analysis survey as part of the development of the new examination which it is looking to launch in January 2016.
Unlike the Series 55 exam, the new Series 57 exam will have no prerequisites. This is in harmony with FINRA’s current effort to eliminate redundancies and inefficiencies in the current testing regime. However, the Series 57 will include the “core” knowledge portion of the upcoming Securities Industry Essentials Examination (SIE).
Those persons who are appointed to supervise applicable securities trading activities will have to qualify as a Securities Trader Principal, a new registration category. They will do this by passing both the Series 57 and the Series 24 examinations. There is a grandfathering provision for those who pass the Series 55 and Series 24 exams prior to effective date.
The upcoming Series 57 is geared to qualify those registered persons who execute trades on electronic marketplaces such as NASDAQ, OTCBB and other OTC equity trading systems as well as options trades executed on the CBOE.
New Jersey Now Requires Series 63 Exam for Broker-Dealers
Effective August 17, 2015, New Jersey joined the vast majority of states requiring passing the Uniform Securities Agent State Law Exam (Series 63 ) in order to function as an agent of a broker-dealer in the state.
On August 24, 2015, the Bureau Chief (New Jersey’s securities administrator) issued an order waiving the requirement for any individual currently registered as an agent in the state.
The effect, therefore, of the new regulation is that all new applicants for registration as agents, unless otherwise exempted, will have to take and pass the Series 63 exam.
What does this mean for Kaplan? New Jersey is one of the states where a significant percentage of agents are registered in more than one state. Those in the northern part of the state generally also register in New York, and those in the southern part generally register in Pennsylvania. Both of these states have long required the Series 63 exam, so this new ruling will only impact those who are registering solely in New Jersey.
The Kaplan Series 63 exam training program has an extremely high passing rate (in excess of 95%) and is delivered almost exclusively in an on-demand video course, meaning no capital investment in instructors or meeting rooms. From a marketing standpoint, a blurb to all New Jersey client firms, as well as those in the states where the Series 63 is not yet required but who conduct business in New Jersey (currently CO, DC, FL, LA, MD, OH, PR, and VT), would make sense.
On another note, the following statement, which is contained in the waiver order, seems strange:
c. Individuals who apply to be registered as an agent who have passed the General Securities Representative Examination–Series 7 and NASAA Uniform Combined State Law Examination–Series 66 (“Series 66”) or who passed the Series 66 prior to January 1, 2000, and have been continuously registered as an agent of a broker-dealer in any state subsequent to the Series 66 passing date.
The problem with this statement is that there was no Series 66 exam prior to January 1, 2000, since that is when it was initially introduced.