|
A Large Insurance-Affiliated Broker/Dealer
(Prepared for 1995) Needs Analysis Background Needs Analysis Reviews
Needs Analysis Conclusions Written Training Plan Development/Structure of Plan NASD Continuing Education Part One NEEDS ANALYSIS: JUNE 1995 Purpose The Securities Industry Continuing Education Program is designed to foster a high degree of professionalism by ensuring a minimum standard of industry/product knowledge in light of the increasing complexity of the securities business. To meet this challenge, the Securities Industry and the NASD have established Rules which set forth Continuing Education requirements. Schedule C, Part XII of the NASD's By-Laws sets forth these requirements. One portion of these requirements is the establishment, by each member firm, of a Firm Element Training Program ("the Firm Element") to be administered by each respective Broker/Dealer. In order to develop this Firm Element Program, a needs analysis is required to be performed which should identify areas which relate to the business of [Firm], which represent strengths or weaknesses in product knowledge, sales practice, industry rules and regulations, etc. Based upon this analysis, a training plan can then be developed which will address these areas. Business and Corporate Structure of [Firm]: The business of [Firm] is that of a $250,000 Broker/Dealer operating pursuant to SEC Rule 15c3-1 (a)(2)(i). The firm's business activities are limited to the following pursuant to its Restriction Agreement dated [ ] with NASD District [ ]. a. Mutual fund retailer; b. Mutual fund underwriter or sponsor; c. The sponsoring and retailing of tax shelters or limited partnerships; d. Direct participation program underwriter of debt securities of limited liability companies; e. Retailing of variable life insurance and annuity products; f. Listed business executed on an exchange; g. Retailing of corporate securities over-the-counter; h. U.S. government securities broker; i. Municipal securities broker; and j. Put and call broker/dealer. The Company also operates pursuant to the (k)(2)(i) exemptive provision of SEC 15c3-3 with respect to its mutual fund business, and the (k)(2)(ii) exemptive provision of SEC Rule 15c3-3 in connection with its general securities business, clearing on a fully disclosed basis through another broker/dealer. [Firm]'s primary business is that of a mutual fund retailer with the bulk of its registered persons [5,000+] maintaining the Series 6 registration. This type of business represents those registered securities which are actively solicited by [Firm]'s Registered persons. The firm also engages in the sale of unit investment trusts, limited partnerships, and variable products such as variable universal life and variable annuities. [Firm]'s remaining general securities business is conducted on an unsolicited basis only. Registered Representatives are prohibited from soliciting or recommending any general securities business. Additionally, should a customer engage in a general securities transaction they must do so directly with the General Securities division of [Firm] located in [City]. The firm does not maintain any discretionary accounts. As of May 31, 1995, the Company offered the following products: * Proprietary Mutual Funds; * Proprietary Institutional Funds; * Non-Proprietary Mutual Funds; * Variable Annuities; * Variable Universal Life; * UITs; * Debt of limited liability corporations; and * General Securities Products (unsolicited basis only). [Firm] is divided into 5 Zones, each of which maintains an Office of Supervisory Jurisdiction ("OSJ"). These OSJs are responsible for the supervision of General Offices ("G.O.s") which are located within each Zone. An additional OSJ is located in the Home Office. Each G.O. is a Registered Branch office of the Broker/Dealer. As of June 1, 1995, [Firm] maintained 150+ Registered Branch Offices. In each Zone office a Registered General Securities Principal, who is the Zone Sr. Vice President, is responsible for supervision. A designated supervisory Registered Representative, who is the G.O. Managing Partner, is responsible for each selling Agent/RR assigned to the office. Scope of Firm Element/Identification of "Covered Persons": Schedule C, Part XII (2)(a) of the NASD's By-Laws ("the By-Laws") identifies those registered persons who would be subject to Firm Element Training. This section of the By-Laws states the following:
Based upon the aforementioned definition of a "covered person," this would include all Company selling Agents who are registered in any capacity with the NASD and their immediate supervisors. As of June 1, 1995, [Firm]'s registered personnel consisted of the following:
Of the total Registered Representatives however, not all are selling Agents/RRs or have direct contact with customers as defined. A number of these individuals' job functions are related to support positions in both the Home Office and Field. Therefore, in order to identify those covered individuals, a number of steps must be taken and are as follows: 1. The number of selling agents/RRs must be determined per G.O. 2. The number of Management Personnel must be determined per G.O. 3. Each additional Registered Person (other than those identified as sellin Agents/RRs) in each G.O. should be identified, and a survey conducted in order to determine whether any direct customer contact is involved. 4. A survey of all remaining locations and departments, including Zone offices (other than G.O.s) should be conducted in order to identify any registered persons who maintain direct contact with customers as well as their immediate supervisors. At a maximum however, [Firm] total number of covered persons as of June 1, 1995 will not exceed [ ]. The preceding sections provide a good overview of the Firm's organization, its activities in the securities business, and the scope of its training effort. This document is not only the Firm's internal training plan, but also the primary means of communicating the Firm's compliance with the continuing education mandates to regulatory authorities. Establishing an organizational context is an important first step in the communication process and can facilitate a systematic review of training issues both for the Firm and regulatory authorities. REVIEW OF RELEVANT REGULATORY FACTORS Review of Customer Complaints: Included as part of our needs analysis was the review of Customer Complaints received for the period January 1994 through April 1995. During this period, [Firm] received Customer Complaints involving Mutual Funds Sales. The number of complaints and the allegations associated with them are as follows: Market value, dividend fluctuation Misc/Misrepresentation Sales charges, fees Forgery Non-receipt of prospectus Guarantee account Misappropriation/misuse of customer funds Mishandling Retirement Accts./ 401 K Plans RR service High Pressure Sales Tactics Suitability Mutual Fund Service During this period, [Firm] received Customer Complaints involving Non- Proprietary Mutual Funds Sales. The number of complaints and the allegations associated with them are as follows: Misrepresentation Service/Operational Misc./Other During the same period, [Firm] received Customer Complaints involving Variable Annuity, Multi-Funded Annuity, Variable Life, Variable Universal Life, Structured Finance Products, Proprietary and Non-Proprietary Limited Partnership Products. The number of complaints and allegations are as follows: Multi-Funded Annuity Service/Operational Suitability Misrepresentation Unauth. Fds. Trans. Misrepresentation/Tx Liability Misrepresentation/surrender charges Other Variable Annuity Service/Operational Misappropriations Misrepresentation Suitability Unauth. Trans Other Indiv. Variable Annuity Misc. Variable Life Service/Operational Misrepresentation Unauth. Loans Suitability Other Variable Universal Life Service/Operational Misrepresentation/Ret. Plan Misrepresentation Replacement Misrepresentation Tx. Load Non-Receipt of Policy Other Structured Finance Products Misrepresentation Proprietary Limited Partnerships Misrepresentation Misc./Service Service Suitability Non-Proprietary Limited Partnerships Misrepresentation Service Other Suitability It should be noted that no complaints involving General Securities were received for the time period reviewed. Review of Arbitration Matters: Reviewed were Arbitration matters filed against [Firm] for the period 19[ ] through 19[ ]. A total of W Arbitration matters have been filed during this time period. Of those filed, X exclusively involved limited partnership products no longer offered through [Firm], Y exclusively involved Mutual Fund Products, and Z involved both Mutual Funds and Limited Partnership products no longer offered through [Firm]. Of the Arbitration matters filed involving Mutual Funds, the allegations varied from misrepresentation regarding charges and fees, to guarantees of principal, and suitability. Review of Litigation Matters: Reviewed were litigation matters filed against [Firm] for the period 19[ ] through February 19[ ]. A total of W lawsuits were filed during this time period. Of those filed, X matters exclusively involved Limited Partnership products no longer offered through [Firm]. In Y instances, mutual fund products were exclusively involved, and included Z allegations of misappropriation of customer monies intended to be invested in mutual funds, sales charges and fees, and one involving misc. allegations. In A instances, both mutual funds and limited partnership products no longer offered were involved and included allegations of suitability and churning. Of the remaining lawsuits, some involved misappropriation of customer monies, and allegations which varied and did not involve any securities products. Review of Regulatory Inquiries: Reviewed were regulatory inquiries received for the period May 19[ ] to the present. A total of twenty eight incidents were involved. Of those reviewed twenty three inquiries were received from the NASD, all of which (with the exception of one instance), were the result of either a U-5 or U-5 amendment filing indicating a reportable incident. In the remaining five instances, inquiries were received from state securities departments and in one instance the Postal Inspection Service. Review of Cause Terminations: Cause terminations were reviewed for the time frame January 19[ ] to the present. For this period a total of W cause terminations were filed. Of these W, X involved misappropriation of customer funds, one involved the guarantee of investment results of a limited partnership no longer offered through [Firm], Z involved Insurance Fraud and/or were insurance related, H involved violations of Company Internal policy, J involved sexual harassment, and K involved misc. items. Review and Results of Regulatory Oversight Examinations: A review of internal disciplinary actions taken or contemplated against [Firm] Registered Representatives was conducted. Of the period reviewed, namely June 19[ ] through June 19[ ], a total of X matters were reviewed for possible internal disciplinary action. It should be noted of those matters reviewed, not all resulted in an internal disciplinary action. The breakdown of these incidents are as follows: Forgery Handling of customer securities Delayed Trades Misc./Loans from cust. Licensing/Registration Unapproved Sales Material Misc. Supervision Receipt/Handling of customer funds Delivery of Policy (variable) Suitability Fraud Use of RR Personal Check Guarantee Against Loss Misrepresentation Churning Unauthorized Trading Review and Results of Regulatory Oversight Examinations: A review of past regulatory oversight examinations and their outcome was conducted. [Firm] was subject to three NASD examinations during 19[ ], 19[ ], and 19[ ]. Two examinations were routine examinations. The examination conducted in 19[ ] reviewed certain lines of business of the Broker/Dealer. In all three instances, the NASD provided letters to the firm stating that no deficiencies were noted. In addition to the aforementioned examination conducted by the NASD, an SEC oversight examination was conducted in 19[ ]. This examination on our proprietary mutual funds and their compliance with the Investment Company Act of 1940. The SEC indicated that no deficiencies were noted. [Firm] was the subject of an SEC "routine" examination in 19[ ]. Since completing the examination in May 19[ ] no comments to date have been received from the SEC. A review of compliance issues can bring to light worthwhile training issues for the Firm Element to address. This Firm has done a thorough review of its compliance experience. Review of Current Training Programs/ Material: The Company has recently established what is referred to as [the University]. This is a program designed to educate our Agents from both a product and sales perspective. This program is administered by the Agency Department, and utilizes resources developed both "in-house" and through an outside vendor who provides educational materials and delivery systems. Incorporated into [the University] are courses and materials which relate strictly to registered securities products. In addition, as mentioned, "in-house" training materials have been developed by various product areas to assist our RRs in their educational needs. The following represents an outline of the current [University] program offered for newly hired Agents. [University] Program Offered For Newly Hired Agents: Each stage of the program consists of two elements, namely a self study portion as well as classroom training. The self study portion can consist of either written material and/or computer based learning programs ("CBT"). In addition, each stage consists of different modules which cover a number of different topics. During each stage of the program, an individual must complete the self study portion and attend classroom training. This classroom training is conducted by field office Training Managers who are located within each General Office. The progress of an individual is monitored via CBT and or Quiz/test scores. In addition, an individual is assessed during the classroom training portion of the program and is judged based upon participation, possible use of a quiz or exam, and role playing responses. In addition, at the end of each program, a Field Observation and Demonstration is completed. This is a formal assessment based upon an individual's performance during a sales call which is personally observe d by the Training Manager. Records are kept of an individual's scores for the self study/CBT portion and classroom instruction records are kept in each respective individual's file on a manual basis. The programs themselves are as follows:
This course provides the new agent with the fundamental knowledge of the Insurance Industry and is designed to orient the individual to both the Company and Industry. This is an intensive course which takes place for an entire week, 10 hours per day;
This stage of the program is designed to provide a more detailed fundamental knowledge of the Insurance Industry than that obtained during the Fundamental Career School. Training during this stage takes place 2 half days per week:
This is the final stage of the formal program which is designed to provide advanced knowledge regarding the sales process, ethics, suitability, etc. This portion of the program provides specific registered product training with regard to evaluating investment risks and investment factors. There are currently two videos available regarding Investment Risk as well as the Sales Cycle. Also, currently being developed are modules pertaining to Variable Universal Life, Mutual Funds, and Variable Annuity products. Training during this portion of the program takes place 1 day per week. In addition to the foregoing, a Series 6 Examination preparation program is available through the Company. This consists of a Computer Based Learning program. Regarding other products offered through Firm, each respective area of the Company does publish on a periodic basis information pertaining to the features of such product, including new developments. In addition to the foregoing, [the University] also administers the [Parent Insurance Company's] Continuing Education efforts for its Life Insurance Agents. The Life Insurance industry has, for some time, required each licensed agent to fulfill certain Continuing Education requirements. These requirements vary from state to state as to the requirement itself, the number of hours, content, and frequency. [The University] currently offers 19 courses available in a CBT format which meet the Insurance Industry CE requirements. Included in this course curriculum are three CBT courses which cover mutual funds, variable universal life, and variable annuity products. These are the same three CBT courses which will eventually be incorporated into the Intermediate Career School program. Since these are part of the Insurance Industry CE curriculum, these courses currently are not required courses for Registered Representatives. The Company has recently contracted with an outside vendor to provide pre- regulatory element training. Currently, the study material available is in written form. It is expected, in September of 1995, that this study material will be available in a CBT format. It should be noted that at the present time, use of this material by each RR subject to the Regulatory Element is not mandatory. New Products/Services: The Company recently introduced the following new products and product features: 1. Unit Investment Trust 2. ABC Trust 2 3. Proprietary Mutual Funds, Class A and B shares 4. Proprietary Institutional Funds available to RRs on a retail basis. Unit Investment Trust _______: introduced in early 19[ ]. ABC Trust 2: was introduced in 19[ ]. This product is an asset backed security with the underlying assets being a diversified pool of non-prime auto loans. These represent an investment grade, intermediate term income producing investment. Proprietary Mutual Funds: Class A and B Shares: were introduced in late 19[ ]. In short, the difference between the two classes of shares is the front end sales charge versus the contingent deferred sales charge incurred. A and B shares are offered on all funds with the exception of the Equity Index Fund which in which only A shares are offered. Proprietary Institutional Funds: were introduced to the field force for sale to individual clients. While the product line is not new, availability to RRs for sale to their individual clients is. Prior to this, these products were sold through a field force dedicated exclusively to the sale of this product. The initial minimum investment is $250,000 thus making these funds available to an exclusive clientele. The main difference between the family of funds offered through this program and standard mutual fund sales is the no-load feature of the Institutional Funds. New Lines of Distribution: In early 19[ ], the [Firm] established a relationship with [A Bank] in order to market mutual funds, and conduct a general securities business on an unsolicited discounted basis. At the present time, the Company has established one registered branch office located on the bank premises. It is the Company's intention to establish 3 additional branch offices in the near future. Recent Industry Trends/Regulatory Developments: Given the economy of recent years, low interest rates, and rising markets, investors have flocked to the marketplace to invest. Of significant note, mutual fund sales and the number of mutual funds in general have increased dramatically. In addition, in the rush to maximize returns by turning to the market as opposed to more conservative institutions and vehicles such as banks and Certificate of Deposits, unsophisticated investors have joined the ranks of market participants. Naturally this can pose significant concerns regarding suitability, as well as other sales practice related issues. In addition, since the bulk of the firm's business is comprised of mutual fund sales, this would represent an area of significant resource commitment regarding continuing education efforts. In addition to general industry trends, a number of significant regulatory issues have arisen recently. In researching these developments, a review was conducted of NASD Notice To Members for the period January 1993 to the present. As a result of this review, while numerous developments have taken place regarding issues which pertain to our business mix, i.e., mutual fund and variable product sales, a number of general developments have taken place. The more notable developments which could affect our business, and should be considered when discussing our continuing education needs are as follows: * T+3 settlement; * Recent developments and proposed rules governing member firms operating on bank premises; * Proposed rules governing RR lending or borrowing from customers; * Cash and non-cash compensation for selling mutual funds and variable contracts; * Investment advisory activities of Registered Representatives; * General Mutual Fund sales practice issues; * Non-Cash sales incentive compensation; and * Reinvestment of maturing Certificates of Deposit in Mutual Funds. Conclusions/Recommendations: Based upon the aforementioned review of customer complaints, litigation, and arbitration matters, there does not appear to be any clear pattern which would indicate any specific problem relating to our product or business mix with the exception of alleged misrepresentation concerning Contingent Deferred Sales Charges. Barring any such pattern, it would appear that the thrust of the Firm Element Training would be, at least for use in the immediate future, a training program which is comprehensive in nature and would address basic sales practice issues relating to the products which we offer. As an example, some suggested topics would include the following: Mutual Funds: * Breakpoint Sales * Switching * Selling Dividends * Churning * Suitability * Disclosure * SIPC Coverage Variable Products: * Replacements of existing insurance products * Misrepresentation Structured Finance Products: * Suitability * Misrepresentation General Sales Practice Related Issues: * Suitability/Recommendations to Customers * Misrepresentation * Selling Away * Use of Customer Funds * Outside Business Activities * Non-Cash Compensation/Gifts and Gratuities * Free-Riding and Withholding * Registration/Licensing * Advertising Those issues related to more specific new products or product features as well as recent regulatory developments should include: Suitability Issues Related to: 1. The introduction of Class A and Class B shares of mutual funds. Prior to the institution of these class shares, the Company offered only Back End load shares. This raises the issue of which shares are most suitable for the client. We must be careful in apprising our RRs fully of the need to ensure a recommendation based upon the client's needs and best interest rather than that which will result in a difference in commission dollars to the RR. 2. Reinvestment of maturing Certificates of Deposit into mutual funds or other investment vehicles. This is especially important given the interest of the general public to an investment vehicle which has the potential to offer higher returns than that which could be obtained by a traditional bank CD. This is also important given the recent undertaking by the Company of establishing a networking arrangement with [A Bank]. Borrowing or Lending from Customers: A recent proposal by the NASD would not allow the borrowing from or the lending to customers by Registered Representatives without prior written approval of the member firm. While our company presently does not allow such activity without company approval, nonetheless, this is a pertinent issue which should be conveyed to the field. Private Securities Transactions/Investment Advisory Activities of Registered Representatives: Based upon recent regulatory clarification regarding this issue, of importance to the Company is apprising any RR who presently may provide investment advisory services of compliance with Article III, Section 40 of the NASD Rules of Fair Practice. The Company has recently conducted a survey of its field force in an effort to identify those Registered Representatives who are either Registered Investment Advisors or who are affiliated with one. Once this is complete, a policy/procedure will be developed in order to ensure compliance with NTM 94- 44. Current and Proposed Rules Governing Broker/Dealer Activity on Bank Premises: Given the establishment of a networking arrangement with [A Bank] and the possible future business plans to expand beyond this arrangement and market, it is imperative that we educate our field force of the present guidelines under which we must operate. T+3 Settlement: While the establishment of this new Rule does not directly impact our sales force, they will play a key role in communicating the importance of prompt payment directly to the client. As outlined previously, it appears that existing training material and resources available through the Company are targeted primarily at newly hired Agents/RRs. While not all of the material available may be appropriate for use by an established RR, nevertheless, portions of this material could be incorporated into a formal ongoing continuing education program. In addition, training material appears to be needed in order to address the aforementioned specific topics. Recommendations for this are as follows: * Utilize the Pre-Regulatory Element training on a mandatory basis; * Utilize existing Mutual Fund, Variable Universal Life (VUL), and Variable Annuity (VA) CBT training material already available, making this a mandatory element for established RRs; and * Develop training material which addresses specific identified current needs. Economic and Market Conditions: As with any investment, current and future economic conditions can affect the performance of such investments in a favorable or negative fashion. Depending upon the type of investment, i.e., individual stocks, bonds, etc., these effects can be compounded. As noted, the Company's business mix is primarily devoted to mutual fund sales. As such, while risks inherent to any investment exist, in that mutual fund investments are diversified and professionally managed, the risks to the customer are not the same as those associated with the individual buyer of individual equities, etc. Notwithstanding the aforementioned, economic factors certainly influence investors decisions and actions. These economic or potential economic changes must be considered when an RR discusses a potential investment with a client. He or she must certainly analyze the client's investment profile determining the most suitable investment for such client. [Here the Needs Analysis discusses the importance of RRs understanding how economic and market conditions affect the performance of different types of investments. The discussion concludes by stating that Firm's product training programs will include modules devoted to these issues.] This needs analysis effectively summarizes relevant data and draws pertinent conclusions from the data. These sections contain important statistical data relating to customer complaints and arbitrations, litigation, regulatory inquiries, terminations for cause, and internal disciplinary actions. Additional information is provided on the results of regulatory oversight examinations, current training programs, new products and services, and recent industry trends and regulatory developments. The conclusions and recommendations drawn from the analyses of these data are well reasoned. However, the plan does not indicate whether line supervisors or compliance or support personnel were interviewed regarding matters they believe should be covered in the training plan. The identification of suitability issues regarding the introduction of Class A and Class B shares of mutual funds and applicable regulatory developments demonstrates an awareness of one of the primary goals of the continuing education program--keeping current on changes in the business. Another important feature of this Firm's plan is its inclusion of ethical and supervisory training objectives. The decision to use already available training material in the Firm can make both economic and substantive sense, but this conclusion would be strengthened if the Firm presented supporting data, presumably available, demonstrating the effectiveness of the pre-existing training material. Additionally, the Firm should review its training materials to ensure they meet the content requirements specified in the Firm Element. Continuing Education Part Two WRITTEN TRAINING PLAN : Objectives of Training Program: The objectives of training program ("the Program") are five-fold and are as follows: To provide Registered Representatives who are "covered" under the NASD's Continuing Education Rule with information and training: 1. specific to the features of products sponsored by [Firm], as well as general features of such products on an ongoing basis; 2. regarding sales practice related issues which specifically pertain to the products sponsored by [Firm] and these same products in general; 3. regarding industry trends of both a regulatory and non-regulatory nature that affect the business and product mix of [Firm]; 4. pertaining to policies, procedures, and expected standards of professional and ethical conduct; and 5. pertaining to supervisory responsibility and duties for those "covered" persons who act in a supervisory capacity. The Program: Based upon the Needs Analysis conducted for [Firm] and the objectives of the Program as set forth above, the Program should include the following: Product Features:
Sales Practice: Training regarding sales practice issues which relate to Mutual Funds, Variable Universal Life, and Variable Annuity Products in general, and specifically to those products sponsored by [Firm] including as follows: Mutual Funds: Breakpoint Sales Switching Selling Dividends Churning Suitability Disclosure SIPC Coverage Sales Charges/Fees Variable Products: Replacements of existing insurance products Misrepresentation Structured Finance Products: Suitability Misrepresentation General Sales Practice Related Issues: Suitability/Recommendations to Customers Misrepresentation Selling Away Use of Customer Funds Outside Business Activities Non-Cash Compensation/Gifts and Gratuities Free-Riding and Withholding Registration/Licensing Issues specific to Products: Suitability with respect to Class A and B shares Disclosure regarding fees and sales charges Issues and areas of concern: Proper Securities Registration/Licensing Handling of customer funds Delayed transactions Industry Trends: Suitability of reinvestment of maturing Certificate of Deposit funds into a registered non-guaranteed product such as mutual funds. An awareness of suitability issues should be raised and outlined; Borrowing or Lending from Customers. The caveats of such should be outlined, and the proposed ruling reviewed. Private Securities Transactions/Investment Advisory Activities of RRs. The ramifications of such activities should be reviewed. Broker/Dealer Activity on Bank Premises. Proposed ruling should be reviewed with those RRs to whom this would apply as well as those guidelines which currently exist which govern this activity. Policy/Procedures and Professional/Ethical Standards: A review of policies and procedures as well as professional and ethical standards should be conducted focusing on the most pertinent and basic elements. Supervisory Review: A review of supervisory responsibilities should be conducted with those covered persons who act in a supervisory capacity. This review should include information which reminds them of their supervisory responsibilities as they relate to the registered product side of the business. Categories of Covered Persons: Essentially, covered persons can be divided into three distinct categories for purposes of the Program. These are namely, Registered Representatives who act in a selling capacity, immediate supervisors of these selling Registered Representatives, and those, who while registered, do not sell but have contact on a limited basis with public customers as defined by [Firm] and the NASD's CE Rule. As such, all of the areas outlined above should be included in the Program for both RRs and immediate supervisors of such persons, with the Supervisory Portion reserved for supervisory personnel, and only a limited number of topics required for those who act in a limited capacity. The above training plan is consistent with the general conclusions of the preceding analysis and adequately outlines its major components. A noteworthy item in the plan is the targeting of supervisory personnel and the inclusion of certain other registered personnel with only limited customer contact. The plan could have been enhanced by identifying specific training topics for these two groups. Development and Structure of Program: Establishment of Standing C.E. Committee: In order to ensure that the Company identifies all pertinent issues and areas of concern and provides for a continued evaluation of the Program, a standing C.E. Committee (the Committee) should be established with representatives from each respective profit center as well as legal and compliance as follows: Compliance (from each area within compliance) Mutual Funds Structured Finance Office of General Counsel General Securities Individual Annuity (Variable Annuities) Individual Life (Variable Universal Life) Agency Department For 1995, this Committee should meet at a minimum once per quarter, and should look to identify any trends or changes to both product and industry which would affect the broker/dealer's business mix. Depending upon their findings, recommendations should be made to update training materials. In addition, review of Regulatory Element results should also be reviewed and evaluated by the Committee, and changes made (if warranted) to training materials accordingly. While not required by the continuing education mandates, the formation of a broad-based, standing continuing education committee is an excellent mechanism for monitoring and enhancing the Firm's compliance with the rule. The committee will review any changes in the Firm's business, as well as the performance of Firm personnel in the Regulatory Element as an information source to provide improvements to the training plan. The decision to have quarterly or semi-annual reviews of industry trends and regulatory developments is especially commendable and justified given the rate of change in today's securities business. Representatives should be chosen for the Committee with the first meeting held shortly thereafter. With the formation of the Committee and first meeting, actual training material will need to be either developed and prepared, or existing in-house material/available vendor material evaluated for use regarding the following: 1. Pertinent issue material (specific to issues previously identify) and industry trend material; 2. Policy and procedure material; 3. Supervisory role and responsibility material; 4. Professional and Ethical standards material; 6. Product knowledge material specific to Company product mix; and 7. General product knowledge material specific to Mutual Funds, VUL and VA product. Based upon training material that is currently available within the Company, it would appear the following would be sufficient to cover a portion of the areas outlined above if adopted as a mandatory part of the Program as follows: Training Material Pre-Regulatory Element training material Area Covered General Sales Practice related issues Portion of Ethics training General Product knowledge Training Material Mutual Fund, Variable Annuity, Variable Universal Life Modules, and CBT Area Covered General Product Knowledge specific to Company business mix Training Material Structured Finance Videos re: Risk Area Covered General knowledge All of the aforementioned would then need to be implemented, and a schedule set forth outlining the frequency in which each area should be covered on an annual basis. As such, the following represents a proposed outline of the Program: Topic General Product Knowledge Training Material Mutual Fd., VUL and VA Modules, and CBT Frequency Once Annually Topic General Sales Practice Training Material Pre-Regulatory Material Frequency Once Annually Topic Standards of Professionalism and Ethics Training Material Develop Training Frequency Once Annually Topic Policy/Procedures Training Material Develop Training Frequency Once Annually Topic Issues pertinent to business/product mix, regulatory, and industry trends Training Material Develop Training Frequency Quarterly/Semi-Annually Topic Issues pertinent to business/product mix, regulatory and industry trends Training Material Develop Training Frequency Quarterly/Semi-Annually Topic Supervisory Role/Responsibility (Management personnel only) Training Material Develop Training Frequency Once Annually Delivery: As noted in the Need Analysis, [Firm] maintains 150+ Registered Branch Offices. In addition, as of June 1, 1995, Registered Personnel consisted of 7,000+ Registered Persons. While not all of these people will be deemed "covered" under the NASD's CE Rule, at a maximum, we should be prepared to deliver the Program to all Registered Personnel. Delivery will depend heavily upon the decisions made regarding the development of Training Material, i.e., in-house versus vendor and the possible use of CBT format. Should the use of an outside vendor be chosen who offers CBT curriculum, delivery would be via a computer terminal, and the training could be conducted on a schedule as outlined above at the convenience of each covered person. Should the Training Material be developed in-house, or for that matter purchased from a vendor but in a format other than CBT, delivery to the field could be conducted as part of an expanded annual compliance review with the exception of the quarterly or semi-annual piece. This Training could be conducted by [Firm] by either the Managing Partners or Training Managers in each respective G.O. In addition, for those areas covered by [Firm]'s existing CBT material, this could be conducted according to schedule as outlined above, however, at the covered person's discretion within the specified time frame. This concludes the Firm's training plan. At this point the Firm proceeds to select the training material to be incorporated into the plan's execution. The Firm also establishes training schedules and the system it will use to document the execution of the plan. These areas are not included in this document. |
