Bat­tle­ground emerges

IIROC pro­pos­als to shorten CE cy­cles among in­dus­try con­cerns

Investment Executive - - FRONT PAGE - BY JAMES L ANGTON

in­vest­ment in­dus­try pro­fi­ciency re­quire­ments — some­times lost in other reg­u­la­tory dis­cus­sions, such as con­duct stan­dards and em­bed­ded com­mis­sions — are set to emerge as another key bat­tle­ground.

The Cana­dian Se­cu­ri­ties Ad­min­is­tra­tors (CSA) is promis­ing to pur­sue re­forms to in­dus­try pro­fi­ciency re­quire­ments in a new, stand-alone project rather than as part of a set of “tar­geted re­forms” to the rules gov­ern­ing client/ad­vi­sor re­la­tion­ships. The On­tario Se­cu­ri­ties Com­mis­sion’s most re­cent state­ment of pri­or­i­ties for the com­ing year states the reg­u­la­tor plans to study the im­pact of ad­vi­sors’ ti­tles and pro­fi­ciency stan­dards on in­vestor pro­tec­tion. In­dus­try self-reg­u­la­tory or­ga­ni­za­tions (SROs) also are con­sid­er­ing changes to ad­vi­sors’ con­tin­u­ing ed­u­ca­tion (CE) re­quire­ments.

The Mu­tual Fund Deal­ers As­so­ci­a­tion of Canada’s pro­posed new CE re­quire­ments, is­sued ear­lier this year, have sparked some con­cern within the in­dus­try al­ready. Now, the In­vest­ment In­dus­try Reg­u­la­tory

Or­ga­ni­za­tion of Canada’s (IIROC) con­sul­ta­tion on pos­si­ble changes to its CE pro­gram also faces crit­i­cism.

IIROC pro­posed sev­eral changes to its CE pro­gram, due to be im­ple­mented at the be­gin­ning of next year, along with a broader re­view of the CE sys­tem. The pro­pos­als would: shift IIROC’s three-year CE cy­cle to a two-year cy­cle; bring the process of re­view­ing and as­sess­ing CE cour­ses in-house; and ex­pand cour­ses that qual­ify as CE.

A sub­mis­sion to IIROC from Toronto-based in­dus­try ed­u­ca­tion provider Smarten Up In­sti­tute Inc. (SUI) ex­presses se­ri­ous reser­va­tions about the di­rec­tion that in­dus­try ed­u­ca­tion is tak­ing: “Dumb­ing train­ing down, and mak­ing things easy, seems to be the trend. The loser is the in­vestor, who may no longer be able to count on hav­ing the best ed­u­cated pro­fes­sional rep­re­sent­ing [him or her].”

Al­though SUI ac­knowl­edges that it has a stake in the out­come of IIROC’s con­sul­ta­tion, the com­pany main­tains that its feed­back is driven by a be­lief in the need for bet­ter train­ing. SUI ob­jects to the idea of IIROC ac­cept­ing CE cred­its from other in­dus­tries in the fi­nan­cial ser­vices sec­tor. For ex­am­ple, SUI’s sub­mis­sion sug­gests that IIROC might rec­og­nize sub­stan­dard train­ing de­liv­ered in the in­surance in­dus­try.

SUI’s sub­mis­sion also crit­i­cizes the preva­lence of lax com­pli­ance and ethics train­ing, main­tain­ing that the process of re­view­ing and ac­cred­it­ing cour­ses should be done by an in­de­pen­dent en­tity.

The sub­mis­sion also ar­gues against grand­fa­ther­ing pro­vi­sions that ex­empt some ad­vi­sors from meet­ing CE re­quire­ments: “IIROC should not al­low any grand­fa­ther­ing re­lief, and in SUI’s view, that never should have been avail­able. [Ad­vi­sors] in the in­dus­try [who] are qual­i­fied and care about their work never should have had and never should have an is­sue with writ­ing new ex­ams.”

SUI’s sub­mis­sion also states that reg­u­la­tors should step up their over­sight and en­force­ment of the qual­ity of CE: “Reg­u­la­tors must start en­forc­ing the rules — not just col­lect fees.”

Al­though the in­vest­ment in­dus­try in gen­eral sup­ports IIROC’s pro­pos­als, there are con­cerns. For ex­am­ple, the in­dus­try favours the idea of ac­cept­ing a broader range of cour­ses and events as qual­i­fy­ing for CE and also sup­ports con­tin­ued grand­fa­ther­ing. How­ever, there are wor­ries about: the shift to a two-year CE cy­cle, par­tic­u­larly for newer ad­vi­sors; plans for IIROC to take over the job of as­sess­ing CE cour­ses; and the process for en­forc­ing com­pli­ance with the CE re­quire­ments.

The com­ment from the In­vest­ment In­dus­try As­so­ci­a­tion of Canada (IIAC) states that the IIAC wor­ries that the move to a twoyear cy­cle will hurt newly li­censed ad­vi­sors. In par­tic­u­lar, the IIAC is con­cerned about the pro­posal’s cu­mu­la­tive ef­fect on ad­vi­sors’ obli­ga­tion to meet the CE re­quire­ments un­less they en­ter the in­dus- try with less than six months left un­til the cur­rent cy­cle ex­pires.

“This [pro­posal] is very oner­ous — in par­tic­u­lar, for new ad­vi­sors en­gaged in busi­ness devel­op­ment [and] at­tempt­ing to build their book,” the IIAC’s sub­mis­sion states. Thus, the IIAC rec­om­mends that ad­vi­sors who join the busi­ness in the sec­ond year of the two-year cy­cle should have their CE re­quire­ments kick in at the be­gin­ning of the next cy­cle.

The IIAC’s sub­mis­sion also ques­tions IIROC’s plans to take over the busi­ness of re­view­ing CE cour­ses from Moody’s An­a­lyt­ics Global Ed­u­ca­tion (Canada) Inc. (for­merly CSI Global Ed­u­ca­tion Inc.): “Al­though mov­ing the re­view would al­le­vi­ate con­flict-ofin­ter­est con­cerns … this po­ten­tial con­flict [may not have] cre­ated ac­tual prob­lems that must be ad­dressed.”

The IIAC is con­cerned that IIROC doesn’t have the ex­per­tise to take over the re­view­ing role and that build­ing that ca­pa­bil­ity will prove costly for deal­ers.

In gen­eral, though, the idea of IIROC tak­ing on the job of re­view­ing CE cour­ses is en­dorsed in the con­sul­ta­tion feed­back. The sub­mis­sion from the Cana­dian Ad­vo­cacy Coun­cil for Cana­dian CFA In­sti­tute So­ci­eties (CAC) states: “If IIROC con­ducts the CE course re­view and ac­cred­i­ta­tion in-house, [that] may fos­ter more com­pe­ti­tion among out­side or­ga­ni­za­tions of­fer­ing cour­ses.”

The CAC ‘s com­ment also sug­gests that rec­og­niz­ing CE re­quire­ments from other in­dus­tries within the fi­nan­cial ser­vices sec­tor could “yield great ben­e­fits” to in­vest­ment ad­vi­sors. How­ever, the CAC’s com­ment stresses that each pro­gram must be “eval­u­ated on a case-by-case ba­sis, fo­cus­ing on the stan­dard of pro­fi­ciency and rel­e­vancy for a per­son deal­ing and ad­vis­ing in se­cu­ri­ties.”

With the SROs mov­ing to re­vamp their ap­proaches to CE, the CSA still may not fol­low suit. The CSA’s orig­i­nal con­sul­ta­tion pa­per (on pro­posed tar­geted re­forms and a “best in­ter­est” stan­dard) flags sev­eral con­cerns with ex­ist­ing in­dus­try pro­fi­ciency re­quire­ments, in­clud­ing the lack of ex­plicit CE re­quire­ments in the CSA rules and that the cur­rent regime may need to be tough­ened to en­sure ad­vi­sors are trained to meet height­ened obli­ga­tions un­der the tar­geted re­forms.

Al­though reg­u­la­tors have pledged to re­form sev­eral ar­eas — in­clud­ing changes to “know your client” and “know your prod­uct” suit­abil­ity and busi­ness ti­tles — the CSA states that tough­en­ing pro­fi­ciency re­quire­ments may be a big­ger job: “The pro­fi­ciency re­forms may re­quire a longer-term project.”

The IIAC is con­cerned that a move to a two-year cy­cle will be “very oner­ous” for newly li­censed ad­vi­sors

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