Finra offer to set up a testing program for RIAs falls flat

Dec 12, 2010 @ 12:01 am

By Dan Jamieson

A proposal by Finra to develop a qualifying test for investment advisers has received a cool reception from adviser groups, which claim that it is part a continuing campaign by the regulator to broaden its powers.

The proposal was revealed last month in a memo the Financial Industry Regulatory Authority Inc. sent to the Securities and Exchange Commission. In that memo, Finra described how it could run a qualification program that would include an exam and continuing-education requirements.

The memo, now posted as a comment letter on the SEC's website, was a follow-up to several meetings Finra officials had with the SEC. The document said SEC staff initiated the proposal by asking Finra if an adviser qualification exam is needed.

In the memo, Finra responded that advisers “should be required to complete an appropriate qualification examination and [continuing-education] program to ensure that they are proficient in their field and in the rules and regulations that apply to them.”

Finra said it “could quickly and efficiently develop and implement qualification examinations appropriate for individuals serving in the advisory industry.” It highlighted its experience in running CE programs for the securities, options, futures and mortgage industries via 500 testing centers around the country.

The SEC should also consider a continuing-education program “in a manner parallel to the securities industry,” Finra officials wrote in the memo.

Finra's outline for an adviser exam would also cover†advisers' supervisors. Any testing and CE program would have to be approved by the SEC and states.

Adviser groups balked at Finra's proposal.

“I'd have some serious questions about Finra having anything more than an administrative role in any competency or CE program for advisers,” said Dan Barry, managing director of government relations and public policy at the Financial Planning Association.

Finra has many dual registrants, Mr. Barry said, “but it would still be a broker-dealer organization setting qualification standards for investment advisers with whom its members compete.”

“There's some legitimate question as to why Finra would be involved,” said David Tittsworth, executive director of the Investment Adviser Association.

“We'd want to know what the problem is that a qualifying exam will remedy,” Mr. Tittsworth said. “Are there a bunch of cases out there where advisers have done bad things?”

Finra's push to implement a testing and continuing-education program “is fully consistent with their continuing efforts to become the [self-regulatory organization] for investment advisers,” he added.

Mr. Tittsworth said Finra could have a financial incentive for wanting to expand its exam program.

In 2009, Finra saw exam revenue drop $8.1 million due to fewer test takers. Finra doesn't disclose the total revenue it earns from exams alone.

Nancy Condon, a spokeswoman for Finra, declined to comment. The SEC did not respond to a request for comment.

Individual advisers who register as investment adviser representatives must already have taken the Uniform Investment Advisor Law Examination (Series 65) or related tests. These minimum-competency tests are developed by state regulators and administered by Finra.

David Massey, deputy securities administrator for North Carolina and president of the North American Securities Administrators Association Inc., which represents state regulators, said the group sees no reason to develop another test.

“We believe that a duplicative examination program is unnecessary,” he said in a statement. “It's like reinventing the wheel.”

Finra didn't say in its memo whether a new test would replace the existing exams or supplement them.

Advisers currently have no continuing-education requirements other than meeting credits for private designations such as the certified financial planner mark.

The securities industry's CE program has two parts. The first part, which deals with regulatory matters and was developed by an industry council, tests brokers every three years for knowledge of compliance, ethics and sales practices. The second part requires brokerage firms to design and implement a firm-specific program that keeps registered representatives up-to-date.

The program was begun in 1995 at the urging of then-SEC Chairman Arthur Levitt amid concern about rogue brokers.

While adviser groups are not in favor of Finra's proposal, industry observers didn't dismiss outright the idea of a more formalized training element.

“I think some form of continuing-education requirement is appropriate, and I do not think IARs would have a major issue with the concept,” said Christopher Winn, managing principal of AdviserAssist LLC, a consultant to advisers.

The adviser industry itself could develop a CE program, he said, which it does now informally through trade groups, custodians and product sponsors.

But the wide variety of adviser firms would make additional testing and continuing-education programs difficult to develop, observers said.

Finra told the SEC: “Specialized examinations for particular segments of the investment industry” should also be considered, and separate continuing-education programs for pure advisers and dual registrants might be implemented.

E-mail Dan Jamieson at


What do you think?

View comments

Recommended for you

Sponsored financial news

Upcoming Event

Apr 30


Retirement Income Summit

Join InvestmentNews at the 12th annual Retirement Income Summit - the industry's premier retirement planning conference.Much has changed - and much remains to be learned. Attend and discuss how the future is full of opportunity for ... Learn more

Featured video


Top questions surrounding future of DOL fiduciary rule

Reporter Greg Iacurci and managing editor Christina Nelson discuss the biggest uncertainties springing from the Fifth Circuit Court of Appeals' decision to vacate the regulation.

Latest news & opinion

What the next market downturn means for small RIAs

Firms that have enjoyed AUM growth because of the runup in stocks may find it hard to adjust to declining revenues if the market suffers a major correction.

DOL fiduciary rule: Industry reacts to Fifth Circuit ruling

Groups on both sides of the fiduciary debate had plenty to say.

Fifth Circuit Court of Appeals vacates DOL fiduciary rule

In split decision, judges say agency exceeded authority.

UBS, after dumping the broker protocol, continues to see brokers come and go

The wirehouse has seen 14 individuals or teams leave and five join for a net loss of $2.4 billion in AUM

Merrill vets ready to recharge breakaway recruiting efforts

After regrouping in wake of broker-protocol exits, Snowden Lane Partners is ready to recruit wirehouse brokers and RIAs.


Hi! Glad you're here and we hope you like all the great work we do here at InvestmentNews. But what we do is expensive and is funded in part by our sponsors. So won't you show our sponsors a little love by whitelisting It'll help us continue to serve you.

Yes, show me how to whitelist

Ad blocker detected. Please whitelist us or give premium a try.


Subscribe and Save 60%

Premium Access
Print + Digital

Learn more
Subscribe to Print