By Sydney LeBlanc

“We live in a world of rules and regs with a multitude of exceptions, but the various interpretations of those rules, regs, and exceptions could fill the world’s oceans!”—J. William “Bill” Cooley, President/CEO, Success Continuing Education, Newport Beach, CA

In July of 1995, our world—as we knew it—changed. That’s when the landmark NASD Continuing Education Rule 1120 mandating Continuing Education requirements for all registered reps and broker-dealers took effect through the Securities Industry Continuing Education Program.

The two primary directives of the program are the same today as they were then: A Regulatory Element and a Firm Element.

For the benefit of those who are either new to the world of continuing education or need a refresher, let’s have a brief discussion about these elements and their definition.

The Regulatory Element is a computer-based training program that focuses on compliance, regulatory, ethical and sales practice standards, and the content is derived from rules and regulations, as well as standards and practices in the industry. In order to keep their licenses active, all registered reps must take, and pass, a regulatory test every three years. (The original 1995 rule stipulated that veteran brokers with at least 10 years experience (holding an NASD license for at least ten years without having obtained a subsequent license would be “grandfathered” and could skip the three hours of training required by all others.)

That rule was amended in 2005. Now, all licenses will fall under the regulatory requirement rules. This rule change affects over 100,000 registered reps.

The Firm Element is also web-based (however, can be classroom based or textbook oriented) and includes product-specific and non-product specific courses. This element requires that the firms conduct a “needs analysis” which can be done via questionnaire sent to all reps in order to determine the type of training and education needed to support the firm’s initiatives. A firm element training plan is developed from the analysis, which is then implemented with the insurance continuing education curriculum chosen.

Says “A-list” insurance continuing education provider J. William (Bill) Cooley, president of Newport Beach, California-based Success Continuing Education, “At the larger firm level, the director of training and development (and additional team members) usually creates the plan with the compliance officer , who then signs off on it. At smaller or independent firms, the manager or the owner/operator of the B/D may handle the plan.” Each B/D has their own “system” of developing the Firm Element Training Plan.

Cooley adds that the plans specify the type of training the reps need. For example, if the firm’s most common products are annuities and mutual funds, but they want to add the increasingly popular 1031 exchanges, those are the areas the plan will zero in on. It’s all very systematic, too, he says. “After reps complete the course(s) and take the tests to demonstrate proficiency, a tracking report of those who did or did not complete (exception report) the course is also provided to the firm.”

Last spring, though, the NASD changed its grandfathering rules for all reps and now it’s back to class for regulatory training with the virtual elimination of the exemption to Rule 1120 that had been established 10 years earlier. The ramification? Slightly more than 100,000 reps who were previously grandfathered will now have to take (or have already taken) the test. The new rule states that reps must complete the training within 120 days from the second anniversary of their registration date, and every three years thereafter. Reps who miss the training will have their licenses inactivated.

Now, instead of bogging you down with more long-winded definitions about rules and regulations (which you can get on, and needless regulatory jargon, let’s take a quick look at a continuing education overview, both NASD-required and the other governing bodies for various licenses. Later, as we move forward with this series of columns on the subject, we’ll provide you with meaningful help in navigating through the maze of insurance continuing education choices and opportunities, choosing content, choosing a quality provider, determining costs and value received, and motivating your reps to “learn” (and not just to meet their basic requirements).

Categories of Continuing Ed

Here’s a quick rundown of the Continuing Education areas that are immediately relevant to our industry:

  • Firm Element Continuing Ed  – Regulated by the NASD, and includes both Regulatory and Firm Element. The NASD does not have an hourly or any other requirement except that each broker-dealer must have a documented continuing education program for its reps. The Regulatory Element programs are also offered for registered Supervisors/Principals and is designed to draw on the experience of the supervisor/principal includes such topics as supervision, suitability, insider trading, money laundering, and interviewing and hiring.
  • CFP Continuing Ed – Governed by the CFP Board of Standards, the current requirement for CFP licensees calls for 32 hours of continuing education every two years, including a required two hours of ethics training.
  • Insurance Continuing Ed – Regulated by the State Department of Insurance (50 states plus District of Columbia, Puerto Rico and Guam). Each state has a certain number of hours that a rep must complete if he or she holds an insurance license in a particular state. For example, in California the requirement is 30 hours, while Florida requires 24. Continuing Education regulations and rules fall under the jurisdiction of the State Departments of Insurance. Many states also have state specific courses that an agent must complete to either renew their license, or if the rep markets certain products.
    Note: Currently, approximately 17 states require an ethics course as a part of the insurance continuing education and many providers suggest there soon will be more states following suit.
  • CLU and ChFC Continuing Ed – The Society of Financial Service Professionals/ PACE Board of Standards is the nationally recognized governing body for these higher designations. Includes continuing education services for credit for financial planners, attorneys, accountants and insurance agents. There is a 30-hour bi-annual requirement.
  • CPA Continuing Ed – The National Association of State Boards of Accountancy is the association body for each state accountancy board. Some states require the registration of programs with the individual state board of accountancy. As a general rule, if an insurance continuing education provider is approved by the NASBA, the state board usually will accept those approved courses for their individual state requirements. Most states require approximately 80 CPE hours every 2 years.

There are, of course, other areas of professional continuing education that require credits, such as CIMA and Enrolled Agent licensees, but for your purposes, we’ve only outlined those, which immediately impact your firm.

For Managers: A Big Challenge in the Office

In addition to understanding all the regs and rules of the various licenses and designations, plus conducting the needs analyses, developing training plans, and choosing providers (which we will cover in upcoming columns), there is another challenge to deal with: Motivation. With the already “stretched-to-the-max” time considerations for busy reps, many of them believe that the continuing ed requirements are just another distraction that takes them away from the responsibilities of client service and gathering assets. Even some managers express this attitude; particularly producing managers.

“Unfortunately there is a general malaise among brokers that insurance continuing education is just something they are required to do; that it’s a chore, it takes time and it’s not very enjoyable,” says compliance expert and president of Centennial, Colorado-based The Compliance Department, Chet Hebert. “They feel it’s something they need to do just to keep their license, not for their own advancement of their education.”

So the challenge becomes how do you rustle up excitement or incentives for the vast majority of your reps who, begrudgingly, spend extra time in front of their computer screens studying for tests?

Offers Hebert, “Managers can motivate their reps by choosing live insurance continuing education presentations. If a rep attends a live presentation and likes what he or she hears and learns, this can be very motivational. For example, let’s say that a rep wants to discuss asset allocation with a client, but does not fully understand the process well enough yet. After a live, high-level presentation on the subject, with interaction and time for questions, then an insurance continuing education course can be recommended for further study. As a result, the rep has a better overall perspective now of the topic and is further motivated to take other courses.”

Bill Cooley agrees with Hebert on the benefits of live group participation. Cooley’s organization—among others– offers these live classroom courses and is among a select group of continuing education providers licensed in all 50 states offering online courses, Live insurance continuing education, textbook courses, and courses on CD.

Providers and Content: Navigating Through the Maze

Without question, the task of choosing an insurance continuing education provider is daunting. Depending on the type of insurance continuing education courses needed, of course, the larger and well-established insurance continuing education providers can help you and your reps meet most all requirements. Firms like Kaplan Financial (which includes Dearborn and BISYS), RegEd, and Success Continuing Education, are just a few of the organizations that are well known in the industry. However, numerous smaller firms that provide insurance continuing education courses are increasingly entering the fray. All in all, there are more than 100 Continuing Education providers for the NASD firm element, and more than 3,000 for insurance continuing education.

Content choice is virtually limitless. Courses on every conceivable product and subsets of product are available. Most all insurance continuing education organizations, regulatory bodies, and state agencies are deliberating on whether (when and how) to require ethics training. But the lack of NASD-sanctioned courses does not deter some insurance continuing education providers. “Although not required by NASD firm element training,” says Cooley, “ we suggest to our broker-dealer clients that ethics training should be a part of their overall training plan. The original rules and regs were set up so that the firm decides what training is appropriate, and to my knowledge the only exception to that has been the requirement for financial firms to educate personnel with an anti-money laundering course., resulting from the Patriot Act”

And, of course, price always seems to be a consideration when choosing a provider. You know the adage, “Price is only an issue in the absence of value,” and while true, you still have a budget to stick to. That being said, the cost of courses and services can range from $19.95 to more than $100 (probably overpriced), depending on how many are chosen, the multiples, the format, and numerous other variables. We’ll cover this important area in an upcoming column, but according to Hebert it’s crucial to look at the quality of the content and the quality of the provider, “You shouldn’t necessarily judge a ‘book by its pricing.’ A lot of broker-dealers and operators look strictly at the price of a insurance continuing education course and think, ‘If I can get it for a-dollar-two-ninety-eight, that’s who I’m going with. But you usually get what you pay for.”

Value-Added Professional Education

Business development, practice management and other value-added courses are not part of the Firm Element and are not included in the course credit requirements. However, you may ask your brokers to take them for their own professional education and advancement. More clients, especially the affluent, are demanding that their advisors be highly skilled in specialized areas such as estate and retirement planning, separately managed accounts, or overall wealth management strategies. Organizations such as the Investment Management Consultants Association (IMCA), The Center for Fiduciary Studies (CFS), and the Financial Planning Association (FPA) offer education and designations to assist your reps in raising the standards of care for their clients.

Currently there are more than 100 designations and certifications available from numerous sources, some of which are internal and awarded by the firm itself to their own reps. Some require insurance continuing education and some don’t. (An entire listing is included in the Nov/Dec 2004 issue of Wealth and Retirement Planning magazine, and I’ll wager that list has increased by at least 20% by now.)

Large Firm Trends in Education and Designations

As mentioned, a number of firms, including Merrill Lynch, Morgan Stanley, A.G. Edwards and others, have proprietary programs that attempt to cover the education and training their reps need, particularly in the area of financial planning. Some include the CFP in their basic training, and others are offering less stringent programs, such as the College for Financial Planning’s Accredited Asset Management Specialist (AAMS) designation. Some firms grant internal accreditations such as for retirement planning and wealth management, and this trend is on the rise as firms continue to compete with each other for high level reps, and for the demand from reps themselves who are specializing in market niches.

Merrill, for example, doles out Private Wealth Advisor and the Wealth Management Advisor, focusing their site on the high net worth and the ultra high net worth clients. Morgan Stanley awards the Senior Consultant designation–among others–for those working with separate accounts and the consulting process.

Meanwhile, nationally recognized advanced designations focusing on wealth management, estate issues and investment management are growing in popularity. Among those are the CIMA and the Accredited Estate Planner (AEP) programs. The Cannon Financial Institute in Athens, Georgia, trains brokers in such areas a fiduciary responsibility, trusts, estate planning, wealth management and more, and is an advocate for increased education in other topics for high level reps, i.e., business succession planning, charitable giving, titling of assets, etc. to give them ammunition and a competitive edge when targeting the wealthy investors.

Until Next Time

We’ve covered the very basics of continuing education in this first column, and there is much more to come. Professional training and education is the lifeblood of our industry, and the firms, both insurance continuing education providers and broker-dealers, are ramping up to provide as much value as possible in order to compete in this environment. A few firms have even set up informal mentoring programs for their reps. It’s a good trend.

Chet Hebert sums up the real value behind continuing education in our industry: “ I believe insurance continuing education courses should reinforce investor protection and market integrity. This is what keeps individuals investing in our markets.”

For More Information:
The Compliance Department —
Certified Financial Planner Board of Standards, Inc. —
Cannon Financial Institute —
National Association of Securities Dealers —
Securities Industry/Regulatory Council on Continuing Ed —
The National Association of State Boards of Accountancy —
The Society of Financial Service Professionals/ PACE Board of Standards —

Questions regarding NASD Rule 1120 and the Continuing Education Program may be directed to NASD staff member Joe McDonald: (240) 386-5065