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NASAA Opposes Additional Exams for Advisory Personnel

By Jim Hamilton

The North American Securities Administrators Association (NASAA) has urged the SEC not to spend the agency's limited resources on developing additional qualification examinations for investment adviser personnel. In a comment letter to the SEC's Acting Director Division of Investment Management, Jennifer McHugh, on December 13, 2010, NASAA opposed a FINRA proposal concerning the development and implementation by the SEC of an investment adviser personnel qualification program. In NASAA's view, the existing competency examinations developed by NASAA remain a vital tool in assessing the qualifications of individuals who are seeking registration as investment adviser representatives. NASAA also believes that FINRA's current continuing education program for registered representatives of broker-dealers is inapplicable to investment advisers.

NASAA observed that state regulators developed the existing Series 65 and 66 examinations in consultation with representatives from the investment adviser industry and experts in the development of qualification examinations. Moreover, NASAA has continued to revise the examinations with the involvement of both practitioners and compliance personnel to ensure that the examinations reflect the current needs of the industry. As a result, NASAA believes that current testing standards are both rigorous and comprehensive in scope. For example, NASAA noted that the existing Series 65 examination covers nearly all of the items that FINRA believes should be included on an investment adviser qualification examination, while also including others not listed by FINRA, such as tax considerations, retirement plans, and state registration issues.

Although acknowledging the need for a continuing education program for registered representatives, given the highly prescriptive nature of regulating the business practices of the broker-dealer industry, NASAA believes that the necessity of such a requirement should be carefully studied before it is determined whether it is appropriate for investment adviser representatives in light of their fiduciary duty. NASAA reminded the SEC that the regulation of investment adviser personnel is a principles-based structure, one centered on the requirement that an investment adviser act in the best interest of its client. The regulation of registered representatives, on the other hand, is modeled on a lesser standard supplemented by rules. Accordingly, NASAA believes that the current continuing education program applicable to registered representatives could not serve as a model for investment adviser representatives.

Full post as published by Jim Hamilton's World of Securities Regulation on January 03, 2011 (boomark / email).