Vice President, Platform Product Management
It is that time of year again when firms have wrapped up their 2020 CE programs and are ready to reflect and plan their 2021 programs. For many firms, this entails dusting off of the 2020 Needs Analysis and Written Training Plan, and adjusting for the current year. 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 should be reviewed and considered by your firm. In either scenario, this article and the resources available from RegEd can help you. This article covers the first step, which is to prepare your Needs Analysis, which is an annual requirement under FINRA Rule 1240.
Updating Your Firm’s Background Information
The first area that needs to be covered in your Needs Analysis is (per FINRA’s Guide) “a description of your firm’s business, especially its size, organizational structure, and scope of business including the types of investment products or strategies offered (or planned to be offered) by the firm”. This is one section that you will be able to reuse each year with minor modifications, such as inserting your current rep and branch office count. A good starting point is to take content from your firm’s website, internal resources, recruiting materials, and FINRA membership agreement in order to describe the firm, its structure, its rep bases, the products it sells, and services it offers. No need to start from scratch when the background info is likely already written and just needs to be customized and put in regulatory-friendly terms.
On that point, keep in mind that when writing the Needs Analysis you are writing to multiple audiences. One key audience is FINRA, which will look to your Needs Analysis as the source document for your Written Training Plan (which is step 2 in the annual Firm Element process). FINRA will look to make sure your plan incorporates the areas it has indicated are important, and so constructing your Needs Analysis document to clearly highlight the items in FINRA’s Guide can help make that part of a FINRA examination flow smoothly.
Describing Your Rep Base
With regard to writing the document in a regulatory-friendly manner, you will want to highlight any strengths of your reps, which can ultimately help you justify the specific training you assign to reps in the Written Training Plan. The goal here is to give context to your Needs Analysis and plan. For example, if you have data on the designations held by your reps, include that information as part of the background. Indicating that 25% of your rep base holds the CFP designation, or that 75% of your reps hold one or more designations, will only help to demonstrate to FINRA the depth of the knowledge of your rep base. You can include a breakdown of the number of reps that hold the Series 6 vs. the Series 7. Also, FINRA expects firms to include feedback received from the Regulatory Element, and if your reps’ scores exceed those of the industry, be sure to include that information as well (and conversely, if your reps’ scores fall short of the industry, FINRA will expect you to address that point in your plan). If you have easy access to data, then it makes the process of adjusting this section of your Needs Analysis simple from year to year.
One other consideration for the background section is looking ahead to the training plan. FINRA expects the training plan to consider the classifications of individuals to receive training, and so your background section should explain your business structure and the types of reps you have in your organization. That may include Series 6 vs. 7, but may also have more nuanced distinctions such as whether your firm has reps that fully engage in the business vs. those that simply refer customers to other reps. While both groups need to be trained, there may be different levels of training needs for each. The same considerations may come into play if you have different business models at your firm, or internally, different departments that have different training needs. Any or all of these groups may be subject to other training by the firm, and so this should also be highlighted because it provides good context to your overall training plan.
Market and Economic Environment Considerations
The next area in FINRA’s Guide pertains to a review and consideration of the market and economic environment. Is the market experiencing large fluctuations on a day-to-day basis or a prolonged downturn? If so, you may highlight this fact and denote the need for training on guiding clients through difficult market conditions. Is the market going through the roof as part of an extended rally? Then you may need to train on client communications in order to avoid exaggerated or promissory statements. What is the interest rate environment and how might this affect the types of products your reps may sell and therefore need to be trained upon? Beginning with this area and the ones that follow, you will want to keep a running list of potential topics, which you’ll find useful when we discuss the need to conduct a survey.
Legal and Regulatory Developments
One area where information is readily-available through external resources is with regard to current legal and regulatory developments. The starting point here will be to review your primary regulators’ publications, including the SEC Exam Priorities Letter and the Report from FINRA on its Examination and Risk Monitoring Program, along with recent and relevant Notices and Investor Alerts. These publications will give you a clear indication of the areas that the regulators are focusing on. The association of state securities regulators (NASAA) has resources on its website, www.nasaa.org. Also, review the Firm Element Advisory from the CE Council. Review these sources and incorporate all areas of regulatory focus which pertain to your firm’s business and products.
Internal Trends and Considerations
FINRA expects that firms will review or consider trends of customer complaints, regulatory inquiries, arbitrations, litigations, or other forms of disciplinary proceedings involving anyone at the firm. While FINRA expects firms to collect feedback and input from compliance, internal audit and legal personnel, this is one area where those groups will be reluctant to provide such information in a written format. This information is best collected verbally from such personnel. Furthermore, CCO’s will want to avoid putting detailed information on such trends and patterns in the formal Needs Analysis document, so instead you should include high level bullets of the types of items encountered, or just general (summary) information. There is no need to place such information on a ‘silver platter’ for the regulators; rather, a determination of trends is legwork which they should undertake themselves.
In addition to getting feedback and input on critical training issues from legal and compliance, FINRA expects firms to also get feedback from trading, operations, management, and sales personnel. This is where your list of market, economic, regulatory, and internal topics can be put to use by sending out a survey to all such parties, to request they provide insight as to which areas they believe need to be trained upon, along with any other areas they think need to be included. It is helpful to provide lists of general industry topics, product types, financial planning topics, ethics, and other regulatory issues in order to gain an aggregated view of the training areas to be considered for training. RegEd offers a turnkey Needs Analysis Questionnaire that can be rolled out to your internal stakeholders and reps to gather all of this information and more, which can also be customized to meet your firm’s specific needs.
Depending upon the size of your firm, it may not be practicable to survey your entire sales personnel population. You might instead focus on surveying branch managers or sales supervisors. If your firm does an Annual Compliance Questionnaire of your sales representatives, you may be able to use this as your proxy for a “survey”, as you can use the results of the ACQ to find areas where training needs reside. For example, does your survey ask if the reps are aware that they must consider breakpoints and whether they understand how to calculate them and if so, what percentage of your reps answered “no”?
There is an expectation for a review or consideration of sales and marketing strategies for products and services, with attention to related potential suitability issues, product risk, and other regulatory concerns. To gather this information, look through your firm’s internal website regarding communications to reps over the past year, where new products, new business lines, new procedures, or changes to any of the aforementioned items may be included. New products and new business lines will likely have resulted in new sales and marketing strategies, which gets to the root of FINRA’s concern here. You may also want to talk to or survey management, supervision, sales and sales support for this information, and to see if there has been a shift in product sales over the past year (if you don’t have access to easily-understandable data).
Finally, FINRA expects the use of performance reviews and business plans to identify development needs of individuals or groups of persons within your firm. The former may be difficult to obtain (if it’s even accessible to you), but the latter can be a sourced from management or other parties which can give you insight into any future considerations (e.g., does the firm plan to offer a new product mid-year, such that you should include it in your training plan now?)
Once you’ve gathered this information, you can begin to fill in the sections of your Needs Analysis to demonstrate to FINRA that you’ve touched on all the areas that have been identified as part of the FINRA Guide. You won’t want to stick purely to their framework, but doing so at a minimum gives you a good, comprehensive look at the areas that can drive your firm’s training needs.
A few final notes on constructing your Needs Analysis and training plan: Make sure that you’re reviewing for changes in the rules related to CE. It’s worth revisiting FINRA Rule 1240 to see if there have been any changes or new Notices that relate to CE. Take a look at the overall regulatory framework to see if any other changes are forthcoming – a great example of this is that NASAA has issued a model rule related to IAR CE in November, 2020. Depending upon your rep base, you may need to incorporate IAR training as part of your annual training plan.
Once your Needs Analysis is complete, you’ll have a better picture of the types of training your rep base needs. For example, are there broad topics that were highly ranked in the survey and brought up in verbal feedback (e.g., dealing with senior investors), or are there concerns that your firm is seeing a pattern of complaints on particular product types therefore necessitating specific product training? The Needs Analysis will be the source document for constructing your Written Training Plan, and by following the above steps, you will have a repeatable process and template to create continuity and consistency from year-to-year.
RegEd has the products and support that can help you collect the information for your Needs Analysis, and for the implementation of your training program. We offer a Needs Analysis Questionnaire with hierarchy-based reporting, an extensive course catalog that can be tailored to the needs of each specific type, classification, rep or employee you have, an On-Demand Annual Compliance Session, and Annual Questionnaires. RegEd understands that training programs for firms will vary in structure, timing, content, and audience, and offers the flexibility to help you successfully implement your training plan, no matter where your firm is on this spectrum.
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.
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