A look at proficiency requirements

Securities legislation is clear on what courses and designations you need in order to be registered in various categories, such as dealing representative and branch manager. But the type of experience you need is less clear-cut.

It’s up to regulators to determine if you’re fit for registration. They look at your education, training and experience. They also look at your outside business activities and your potential for conflicts of interest, including anything that might impact your ability to deal in the best interests of your clients. This could include whether you are on the board of an issuer you are promoting, selling other financial products or whether there are any regulatory or legal proceedings against you. And they examine the solvency of prospective registrants—a bankruptcy doesn’t automatically disqualify you, but it could.

A look at various categories

EMD

To be a Dealing Representative of an Exempt Market Dealer, you must have completed the Exempt Markets Products Course or the CSC; there is no experience component required.

CCO

As of January 2015, the requirements to be a Chief Compliance Officer (CCO) are more stringent—along the lines of other categories of registration. The new rules include an experience requirement: the CCO must now have 12 months of relevant securities experience. This includes the training and experience to perform the tasks required of a CCO, such as implementing and maintaining an effective compliance system.

PMs

Meanwhile, there are three Portfolio Manager categories under which you can register: Associate Advising Representative (AAR), Advising Representative (AR), and CCO. To register as an AAR, you need to have completed the first level of the CFA program, or have achieved the CIM designation and have 24 months of relevant investment management experience (RIME). AARs can meet with clients and make specific investment recommendations, but must be supervised by an AR. The most common qualifications for an AR are the CFA Charter and 12 months of RIME, or the CIM designation and 48 months of RIME. The CCO must qualify as an AR, and have completed either the Partners, Directors and Senior Officers Course or Chief Compliance Officer Qualifying Exam.

Relevant experience

Determining what qualifies as RIME is trickier. Typically, it’s the ability to conduct securities research and analysis in the context of portfolio selection, and manage discretionary investment portfolios.

And just because you’ve worked in the financial industry doesn’t mean all your experience is pertinent. You’d need to show that you can conduct an independent analysis of securities, and create a portfolio according to clients’ needs.

There are many situations where people do not qualify, such as when someone works in corporate finance, performing take-over bids and M&As. That person’s ability to conduct securities analysis may not be questioned, but his ability to apply it to portfolio selection is difficult to prove. Registered representatives of IIROC firms do not typically qualify—although they make specific investment recommendations and construct client portfolios, many firms limit these reps to specific model portfolios, which may not involve the in-depth analysis experience regulators require.

Also, MFDA representatives don’t usually qualify because they’re selling pre-packaged products, which don’t include the necessary analysis. However, each application is reviewed according to the information provided, so it’s important to highlight relevant experience and to show all your activities in the field.

If you don’t qualify for a specific registration, you can file an exemption application. However, you’d have to have many years of relevant experience to make up for the lack of book knowledge. A rule of thumb is that enough experience can make up for a lack of courses, but no amount of courses can make up for a lack of experience. The number of acceptable years of experience would be looked at on a case-by-case basis by the regulators, but would have to far exceed the minimum required under the rule had you also completed the necessary courses.

And, when you’re applying to be a registered portfolio manager, regulators ask for letters from former supervisors attesting to your past activities. These should match what you’ve put in your application, so always leave your past employers on good terms because you’ll need their support when seeking registration.

by Jonathan Heymann, president of Wychcrest Compliance Services Inc., a consulting firm specializing in securities compliance and registration (www.wcompliance.ca).