Examining Examinations in St. Paul

St-PaulBy Chris Hayes, FSI State Regulatory Affairs Counsel

As a continuation of FSI’s State Outreach Plan, I returned to the Land of 10,000 Lakes (site of FSI’s Regional Discussion earlier this year) with my colleague Robin Traxler to discuss the implementation of the new investment adviser representative (IAR) registration requirement by Minnesota Department of Commerce, Securities Unit (Department). Robin and I met with Robert Moilanen, Natalie Roberts, and Stephen Stroup of the Securities Unit of the Minnesota Department of Commerce, and were joined by FSI members Stephanie Rustad of Ameriprise Financial, Jennifer R. Relien of Woodbury Financial Services, Inc., James J. Cavalier of Cavalier & Hubers (an Ameriprise Financial Advisor), and Kenneth L. Brown of Raymond James Financial Services, Inc.

A Bit of Background
The meeting was held on a bright, warm St. Paul morning in the offices of the Minnesota Department of Commerce, and the main issue was the recently enacted legislation that created a requirement for IARs to register in the state for the first time ever. In addition to the registration, new IARs in the state were also required to hold a Series 65 or 66 license, meaning that IARs who had previously provided advisory services to clients in the state and were not licensed would need to sit for the Series 65 or 66 license exam. The legislation implementing this new requirement was passed and signed into law by the Minnesota governor in April of 2013.

The new requirement was to come into effect on August 1, 2013, according to the legislation.  After receiving word about potential implementation difficulties the Department was having and the impending August deadline for registration, we reached out to the Department to learn the details, offer our help and find out how our members could comply with the original August 1st deadline.  At that time, we were informed that the IARD system, which would allow registration, would not be active until sometime in the 4th quarter of 2013.

The Department had issued guidance to email subscribers of its newsletter and posted on its website that firms, as a logistical matter, would not be able to register by the August 1st deadline, and therefore would not be penalized for failing to do so. They also indicated the Department was accepting comment and input from the industry on implementation of the new rules. After receiving significant feedback from both broker dealer member compliance departments and individual financial advisors in Minnesota, we wanted to make the following recommendations:

  • Full “grandfathering in” of existing IAR’s that are currently providing advisory services in Minnesota and currently hold Series 7 and 63 licenses and exemption from the Series 65/66 exams.
  • Exemptions for IAR’s that held professional certifications recognized by FINRA (CFP, ChFC, PFS, CFA, CIC). This is common in many states.
  • Conditional registration that would allow IAR’s a certain period of time to continue providing advisory services while preparing for and taking the Series 65 or 66.

There will not be a fee for the registration for the time being, though one is anticipated at some point in the future, and the Department’s understanding is that the IARD system will be able to begin registering IARs by late October.

Meeting Takeaways
Our IAR members attending the meeting, Mr. Cavalier and Mr. Brown, did an excellent job explaining the impact of the new rule on their practices. They highlighted the massive investment these IAR’s had made in their own small businesses, the training, years of experience and continuing education credits they already possess, the impact on the employees of their businesses, as well as the impact on advisory services they provide to clients.  These IARs made it very clear that they would be seriously impacted if they were unable to pass the exams, and would have to take significant time off from their practice to study for and pass them. Mr. Brown and Mr. Cavalier appreciated the opportunity to share their thoughts on the rule and what it would mean for their businesses. The Department was able to get a first-hand account of how their regulation would impact the people it was designed to regulate which was surely valuable to them as well.

Overall…
The exchange was a positive one, and we and our members felt that we made a strong case for the grandfathering of existing IARs.  Our members felt that they were able to provide the financial advisor’s point of view, and that this resonated and provided a unique perspective to the Department. The Department and Director Moilanen appear to be reasonable in their approach to regulation and very open to working on common issues with industry and made clear they wanted to get the implementation of this new rule right, the first time.

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