Continuing Education -- continuing headache for industry (Guest Blog by Warren Forest)

April 19, 2010




 by Warren Forest

In 1995, the National Association of Securities Dealers ("NASD"), now known as the Financial Industry Regulatory Authority ("FINRA"), initiated NASD Membership and Registration Rule 1120: Continuing Education Requirements, which made continuing education ("CE") mandatory.  A year before this measure was enacted; educational requirements were discussed in depth at a national NASD conference.  Usually these meetings are sedate, informative affairs.  However, the session dealing with the notion of mandatory educational requirements was anything but low key.  The debate surrounding the issue was loud, aggressive, and quite rancorous.


The brokers in the room were demanding to know why experienced reps had to be subjected to furthering their knowledge in the securities industry.  After all, if anyone needed to be educated, it was the rookie broker, or perhaps someone who had been licensed only a few years, certainly not seasoned, veteran brokers. 


Indeed, the stakes were high.  Member firms face at least three layers of regulation, the U.S. Securities & Exchange Commission (SEC), NASD (now FINRA), and the individual state securities administrators -- and all of these regulators were clamoring to initiate some sort of educational program.  Unless the industry came up with a uniform standard that was acceptable to all parties, the securities industry might have faced a disenfranchised, state-regulated system, similar to that imposed on the insurance and real estate industries.


The regulators and member firms took the cue and created a uniform standard applicable to all registered members of the profession, known as the Regulatory Element.  They also created another continuing education system that required each firm to develop and design a unique specific training program, known as the Firm Element. 


The Regulatory Element is administered by FINRA, and affects only registered persons.  Firms need only insure that their reps participate in computer generated Regulatory Element sessions at the required time intervals. 


The Firm Element, however, is designed and administered by each FINRA Member Firm.  What makes the Firm Element daunting is that FINRA does not inform its members just how they should design a Firm Element Program, nor do they let them know how frequently they must hold their sessions. But rest assured, if the Firm Element is not done properly, or as often as the regulators deem fit, a member firm may be subject to adverse regulatory actions.  This could translate into fines, sanctions, or even suspensions from the business.


A Firm Element Program must be designed to take into account the specific educational needs of each broker/dealer.  In order to accomplish this, every year management must complete a 'Needs Analysis' that serves to outline the Firm Element Program.


The Firm Element introduced a new concept called a 'covered person'.  This is any person, whether they are registered or not, that has contact with the investing public.  All covered persons must attend Firm Element training sessions.  Therefore, a non-registered receptionist has to participate in these sessions, while a registered trader, who has no public contact, is Firm Element CE exempt, and does not have to attend any sessions.


Registered Representatives may view the Firm and Regulatory Elements as a necessary evil, or just another compliance burden.  Continuing education is mandatory, but every registered rep should view this requirement in a positive light.  After all, you would not want to entrust your physical health to a professional who had out-of-date skills.  Your clients' financial health is equally as important as their physical health.  By staying informed and educated with current knowledge, as a financial professional, you will keep your clients financially healthy, which should lead to increased sales, production, and professional satisfaction for you.     



Fortunately, there is help!  BD University ( offers a comprehensive product that lifts the Firm Element burden entirely.  Member firms and registered reps can utilize BD University's tools to create a 'Needs Analysis' and Firm Element program that will both satisfy the regulators and effectively educate covered persons.



Warren Forest

President of Forest Brokerage Advisers, Inc.

Founding Partner of Broker Dealer Place, Inc.


Warren A. Forest is the president and co-founder of Forest Brokerage Advisers, Inc., a consulting firm that offers compliance services solely to the securities industry since 1991.  As a consultant, Warren assists companies, ranging from small broker/dealers to subsidiaries of money center banks and investment advisors, with expanding their organizations to their full potential, along with maintaining conformity with regulatory agencies. 


Broker Dealer Place, Inc. (BDP) was co-founded by Warren in 2009.  BDP was designed to be your one-stop securities industry resource.  The company is comprised of several divisions effectively creating a virtual "place" to serve all of your needs.  One facet of the company facilitates the buying and selling of Broker Dealers, RIA's and Assets.  Another division is BD University, an online Continuing Education and Pre-licensing solution for the financial industry.  And the third major division is VIP Place, a free securities social network exclusively for investment professionals


Warren has held positions of president, chief financial officer, and chief compliance officer at self-clearing, large regional and third-party provider firms.  He has been actively involved in the securities industry since 1983, and holds several FINRA principal licenses including Financial and Operations Principal, General Securities Principal, and Municipal Bond Principal.


As an expert in the field, he has authored numerous articles for Bank Investment Representative dealing with compliance and legal issues effecting broker/dealers.  Forest has been quoted as an expert in Bank Investment Representative, Dow Jones News, and Registered Representative Magazines.  He has participated as a speaker to industry leaders for the Securities Industry Association, the National Investment Banking Association, and the Information Management Network.  Warren is also an active securities arbitrator with FINRA.


His educational background includes an MBA in finance and an undergraduate degree in finance both conferred from Florida Atlantic University in Boca Raton, Florida. 






Street Sweeper

The SEC's case against Goldman Sachs has lots of holes in it.


============================================================ New FINRA Cases Analyzed by Bill Singer


Regulatory lawyer Bill Singer has analyzed and posted the latest crop of FINRA disciplinary cases.   

  • If you want to steal a half a million bucks from a bank, just write "At the Customer's Request" on a deposit slip.  Think I'm kidding?  CLICK HERE.
  • These bank cases are getting annoying -- I mean, c'mon now, it can't be that easy to steal money -- can it? Read about one enterprising employee who embezzled $1,452,158, and then enjoy a hilarious Woody Allen clip. CLICK HERE
  • How about the broker how sold $2.5 million of promissory notes to individuals, for which he received commissions of approximately $157,000. His investors ultimately lost more than $2.2 million of the $2.5 million that they had invested. CLICK HERE
  • You heard about the Merrill Lynch caper that seems straight out of a Marx Brothers' movie?  Ya got yer disappearing facsimile machine. Ya got yer lawyer who's not a lawyer but has a business card that says he is. Ya got some odd shenanigans involving the Office of General Counsel. CLICK HERE
  • What's up with Equity-Indexed Annuties (EIA)?  Looks like FINRA is cracking down. Read these cases for guidance. CLICK HERE