Vice President, Platform Product Management
FINRA Rule 1240 requires each of its member firms to conduct an annual evaluation and prioritization of its registered persons’ training needs, develop a written training plan, and implement and track completion of that plan. Our first article covered the Needs Analysis, and this article covers the second step, which is to develop your firm’s written training plan.
Similar to our guidance on the Needs Analysis, if your prior year’s plan was successful, you can use that as your template for 2021. If planning Firm Element is a new task for you, it is recommended that you create a framework that can be reused in subsequent years. FINRA’s Guide to Continuing Education Requirements has a basic outline of the expected areas that must be addressed in the training plan. Also, keep in mind that FINRA expects that the results of your Needs Analysis be directly translated into your training plan, and so we recommend you revisit our prior article if you’ve not yet done step one.
Establishing an Objective
The first area that needs to be covered is the overall objective of the training program. FINRA has given us a good start on what that objective needs to include. Rule 1240 states that the Firm Element CE program is meant to enhance the securities knowledge, skill and professionalism of a firm’s registered persons, and must cover training in ethics and professional responsibility and the following matters regarding securities products, services, and strategies offered by your firm:
- General investment features and associated risk factors
- Suitability and sales practice considerations
- Applicable regulatory requirements
A few things to note here. Clearly, these broad topics should be incorporated into the description of your program’s objective. However, FINRA uses the phrasing that the plan “must be appropriate for the business of the member”, which is one of several indicators that FINRA has given that the plan needs to be specific to what is “offered by your firm” and “applicable” regulatory requirements. In other words, FINRA’s expectation is that you are tailoring the plan to your specific rep base and business structure and not just a recitation of the bullet points listed in the rule. This is where you will need to bring some level of focus to the types of products, services and strategies offered by your firm, and tie them back to the objectives listed above.
Knowledge or Skills to be Imparted
The second area listed in FINRA’s Guide, in combination with the results from your Needs Analysis will help with the above. FINRA states that the training plan must address the “knowledge or skills to be imparted”, and your Needs Analysis has captured the list of knowledge and skill areas that have been identified as gaps, needs, or topics to be revisited with your representatives. For example, you might explain that your firm is going to train on “General investment features and risk factors of mutual funds, as our rep base consists primarily of Series 6 representatives with 90% of our production in that product, along with feedback from our Needs Analysis that we have seen a gap in knowledge in breakpoints, which is an ongoing regulatory concern.”
Laying out the Training Plan
Once you have provided a sufficient description of the training program objectives, the next section gets into the details of the actual plan. There are many formats and structures that a training plan can take, and your firm’s learning/training/development department may have a standard template for you to use. As such, we will not get into the format as much as we will be discussing what should be covered. Also, keep in mind that FINRA does not indicate that the Needs Analysis and Written Training Plan must be two separate documents; however, if you do combine them you will need to make sure that there is clear delineation between the areas covered for each component.
The four areas that need to be detailed next center around what, who, how, and when:
- What – the specific training programs or activities
- Who – the classifications of individuals to receive training
- How – the specific delivery mechanism and resources needed to conduct the training
- When – the specific time scheduled for delivery
In some ways the “What” ties in to the “Who” and “How”, which is covered below in more detail. However, the underlying purpose of this section is to explain the key areas that will be covered in the training program, as a result of the Objectives and Needs Analysis. For example, if your firm has decided that due to regulatory focus and/or specific inquiries with your firm, that the regulators are focused on outside business activities, communications via digital/social media, and senior investors, you may assign a course for each of those specific topics. On the other hand, if the result of your Needs Analysis is a heavy slant on products, then you might assign courses based on the specific products your firm offers, or if possible, based on the products sold by each rep. The latter is more time intensive, but it paints a better picture to FINRA if a rep is getting specific training on the top three product types that he or she sells, rather than a broad course assignment.
Regarding product training, FINRA provides a list of topics that can be utilized to make sure the training material reasonably addresses specific Firm Element requirements such as:
- Providing descriptive information regarding the general investment features of the products, services or strategies offered by the Firm
- Basic techniques for pricing the products and services
- A discussion of the applicable risk factors (business risk, interest rate risk, etc.) associated with the products and services
- Any special product features which could impact liquidity, taxability, etc.
- Product suitability for different types of investors
- Meeting regulatory requirements including standards for communication
If you are going to require different groups to take different training, you will want to explain that here or within the “Who” section. For example, perhaps you will you assign a supervision course to supervisors, account processing training to operations staff, and communications with the public content to sales persons. Be aware that you are required to specifically address the training needs of supervisors.
Given the competition for your representatives’ time, you are limited to the amount of coursework you can assign. The annual compliance session is where you can compensate and cover a lot more topics in an attempt to hit all of the important training areas and all of the areas identified in your Needs Analysis. The annual compliance questionnaire can also serve as training on specific topics. Detail in this section all of the specific areas that you intend to cover in your training.
You will also need to include any other training that your firm plans to conduct. For example, if your firm has decided that Reg BI and Form CRS training will be an annual requirement, be sure to mention this in your training plan. If you are conducting branch inspections and a component is a discussion of the importance of cybersecurity, leverage this training and include it in your training plan.
In addition to the above, your firm may have other training programs that are either mandatory or optional, and which may be ongoing or available only this year. If these training programs cover any of the topics in your training needs or objectives, you should include them here as well. Providing a description of all of the training that your representatives must or can take will help provide context of your training plan to FINRA.
FINRA does allow firms to count training that representatives undertake outside of the firm, such as CE required for the CFP or other designation that they hold. If your firm chooses to count this training toward Firm Element, keep in mind that there is an accompanying burden of making sure that the training is related to securities and is related to topics deemed necessary by the Needs Analysis. To assist in tracking, RegEd offers an “offline uploader” where you can track training that representatives do elsewhere, and it can also be used to track all of the in-person training that your firm does such as in-person compliance session completion information.
A couple other items to note. First, you will want to include training on anti-money laundering and ethics. The former is necessary, in particular if you have insurance-licensed representatives, the carriers will ask your firm for documentation that annual AML training has taken place. Regarding ethics training, this is required as part of Rule 1240 and must be included.
For the “Who”, you’ve likely already included this information in the background section of your Needs Analysis. You will now want to take the various categories of individuals that your firm has, and indicate if there are any particular training areas needed for each group, and why.
Regarding the “How”, FINRA expects that the training plan will identify and incorporate the type of delivery vehicles or media used to execute the training, such as direct participation in the form of seminars and lectures, computer-based training, audio/video/internal broadcasts, independent study or internally generated materials, meeting, videos conferences and conference calls, mentor relationships and/or externally developed programs (for which the specific vendors should be listed). FINRA’s expectation is that the training plan will be reasonable in relation to your firm’s size and resources.
For many firms, the specific training program activities are handled in some common ways. Firms will provide their representatives with assigned coursework, through an outside vendor such as RegEd that creates, maintains and updates courses, or through internal sources. The challenge with the latter is no stranger to compliance personnel – lack of time. While the Compliance team has the knowledge of what needs to be included in the training, they typically do not have the time (nor the PowerPoint skills!) needed to create professional-grade training courses. If your firm decides to do this internally, it is recommended you leverage your firm’s learning and development team. FINRA’s Guide covers some examples of how the training material is to be utilized to reasonably address specific Firm Element requirements, which should be reviewed if your firm is going to create its own materials.
Annual Compliance Questionnaire
A second common component is an annual compliance questionnaire. Some firms conduct these in person, and others will send out an electronic questionnaire. The questionnaire typically serves multiple purposes. First, it is a training vehicle in which firms ask their representatives to confirm their understanding of specific firm policies and procedures. Second, the questionnaire serves as a data gathering tool to obtain information on a variety of topics, such as what designations a rep holds, a list of social media sites they are using, and so on. Some firms also do a separate questionnaire at the branch level, to be completed by the “person-in-charge” on Form BR or otherwise. RegEd has deep questionnaire functionality that can not only affirm policy understanding, but can gather information, and create and route tasks for follow-up by Compliance staff.
Annual Compliance Session
The third common component of a firm’s training program is the annual compliance session. Many firms develop their own content, which is important because so much of the training needs to be focused on the specific needs of that firm’s representatives. Based on firm specific needs, RegEd offers presentation content modules on investments, suitability, outside business activities, etc. that can be combined into an online compliance session. Also, keep in mind however that the annual compliance session is required under Rule 3010(a)(7), and the expectation is that the Firm Element training should not be limited to compliance topics from the compliance session if there are product training needs.
Many firms present the session in person, but given the current pandemic and representatives being geographic dispersed, the session is done online. RegEd’s Annual Compliance Meeting On-Demand product meets all of the requirements outlined by FINRA in its Interpretive Letter regarding the use of on-demand webcasts for annual compliance meetings.
The “When” should not just include the date the training will first be made available and the due dates for each component, but an explanation of the ramifications for failure to complete the requirements. Make sure to look at your firm’s calendar of events, as you’ll want to avoid due dates that coincide with your national conference or other events. Also, consider the particular date that you will use as the due date and how firm you will be. For example, if your firm uses a Friday as a due date, but you’re willing to give your reps a last warning on the due date, you’ll still give them the weekend to finish completion. You’ll want to give your reps as long as possible to complete the training, but balance that with giving your compliance staff enough time at the end of the year to contact any ‘stragglers’ to get them to complete the training.
The plan will also need to explain who is in charge of not just creating and implementing the training plan, but who is responsible for tracking completion (and/or who it is delegated to). RegEd can help drive reps toward completion through a landing page dashboard that highlights completion status and due dates, along with automated email reminders and on-demand completion reports.
Also, as part of the FINRA Interpretive Letter on webcast training, you need to provide your representatives with a mechanism to ask questions. RegEd’s ACM On-Demand product has this functionality, which not only allows them to ask questions but to also provide feedback. Feedback is the final area that FINRA expects firms to capture, in order to determine the program’s effectiveness and make any modifications as needed. You can also capture feedback within your annual compliance questionnaire.
One last item to note, is to make sure your training plan has a discussion of what you did last year. This is not just important in order to provide context to FINRA about this year’s plan, but also allows anyone reading the document to understand the continuity or changes in the plan from year-to-year. Also, doing this and using the above framework will allow you to standardize your process and documentation, making it easier on you or whomever puts together your firm’s training plan in subsequent years.
Meet the Author
Vice President, Platform Product Management
Adam has over 20 years of direct experience in financial services compliance. Prior to joining RegEd, Adam was Chief Compliance Officer leading the Compliance Services team at Avantax, formerly known as 1st Global, where he was responsible for overseeing CE, branch inspections, advertising, outside business activities, outside brokerage accounts, regulatory requests, licensing, and many other compliance areas.
RegEd is the market-leading provider of RegTech enterprise solutions with relationships with more than 200 enterprise clients, including 80% of the top 25 financial services firms.
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