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A Mid-Sized Independent Contractor Broker/Dealer
(Prepared for 1997) Needs Analysis
Training Plan Continuing Education Needs Analysis And 1997 Training Plan November 15, 1996 PART ONE - NEEDS ANALYSIS I. Overview [Firm] is a full service Broker/Dealer with the main office located in [City] and the regional management office located in [City.] The 800+ Registered Representatives who are registered in 47 states, conduct business as Independent Contractors. The following is an analysis of our training needs and corresponding 1997 Firm Element Training Program as mandated by Schedule C of NASD By- Laws, Part XII in regards to Continuing Education. II. Covered Persons A. Locations For the purposes of determining which methods of training will best suit [Firm]'s Registered Representatives, we evaluated their locations. As can be seen by the chart below, 63 percent of [Firm] representatives are in the northeast. The remaining 37 percent of representatives, however, are dispersed throughout various geographic regions.
B. Employees/Officers of [Firm] The Main Office contains 16 NASD registered personnel and the Regional Management Office contains 6 NASD registered personnel. There are 60+ full time employees of [Firm]. Each of these people participate in an ongoing employee training program established prior to the NASD mandate for continuing education. The program is conducted through presentations from product managers and department heads. These presentations are run weekly in 4-6 month cycles. Non-licensed employees also participate in the employee training sessions. In addition, each Series 7 licensed employee is required to complete the [Clearing Firm] Procedures training module. One of the characteristics that we feel has always set us apart as a broker-dealer is our commitment to service and our dedication to our Registered Representatives. The training that we conduct internally is done to meet our goal of increasing each person's product knowledge and enhancing their work skills in order to provide the highest quality service to the Registered R epresentative. C. NASD License(s) Held Approximately 41% of [Firm] Representatives are Series 6 licensed and 59% of are Series 7 licensed. (Series 26 are considered 6 and Series 24 are considered 7.) A few representatives hold a Series 1,4, or 22. Most representatives deliver financial services to their clients through the sale of mutual funds and other packaged products. Many do not feel the need to become Series 7 licensed because the combination of products they use do not require one. There is also a significant number of representatives who have recently obtained their Series 7 license, but sell primarily mutual funds rather than general securities. The overview and sections dealing with covered persons contain useful background about the Firm--the number of registered persons, geographical distribution, types of registrations held, and the fact that the firm has a tradition of continuing education that is made available to registered and non-registered employees. III. Survey of Product Importance We surveyed our registered representatives on various products and services in order to determine which areas they rank as being more important than others. (See next page.) The following chart illustrates statistical information compiled from the 1996 survey of registered representatives for use in the 1997 Plan. The survey was handed out and collected immediately at the end of each 1996 Compliance/Continuing Education meeting. Firm Element Exhibit Continuing Education REGISTERED REPRESENTATIVE NEEDS ANALYSIS SURVEY FOR [FIRM'S] FIRM ELEMENT TRAINING PLAN 1. Please rank (1 lowest - 17 highest) the following products/services/skills in order of importance to you Direct Investments Economic Trends Education Planning Equities Estate Planning Financial Planning Fixed Annuities Insurance Knowledge of NASD Regulations Margin Accounts Municipal Bonds Mutual Funds Options Retirement Planning Taxable Fixed Income Unit Investment Trusts Variable Annuities 2. Are you a Branch Manager? 3. What License(s) do you hold? 4. What do you feel is the biggest issue or dilemma you face as a member of the securities industry today? Name (optional) Question one of the Registered Representative Survey asks the respondent to rank topics in order of "importance," a word that may be interpreted quite differently by different readers. One person may define "importance" in terms of his own business mix, while another may focus on gaps in her knowledge where she believes it would be important to have additional training. A sentence or two at the top of the Survey could help respondents understand what frame of reference to use. It also could be helpful to group topics by category--products, services, and regulatory issues, for example. Compilation of 1996 Survey of Registered Representatives for 1997 Needs Analysis PRODUCT IMPORTANCE
IV. Input from Senior Management and Key Personnel Senior managers and department heads were interviewed. (SVP, Marketing, SVP Compliance, Operations Manager, Trading Manager, Accounting/Cashiering Manager, Advisory Services Manager.) They were asked what they felt should be covered in the 1997 firm element training program. Most of the issues that were raised were operational or non-product related. Many issues were raised by more than one individual. Issues raised by more than one person included: trade settlement and money movement between [Clearing Firm] and [Firm], how to look up commissions on PC system, and how to change the dealer on a mutual fund that is in a brokerage account. Certain product related issues were also a concern to some. They included information regarding mutual fund fees and expenses and information on equities specifically with regards to splits, dividends, and tenders. It would be helpful to list the issues raised by senior management and the prioritization of the issues in order to support the topics selected for the Firm Element training plan. V. Revenue and Sales Volume A. The following chart displays our product mix and the percentage of projected 1996 revenue compared to 1995 revenue for each product.
B. The following chart lists the Number of Representatives by Sales Volume.
The lists of revenue and sales volume information by product clearly identify sources of the Firm's revenue and where important training needs might exist. It also helps to align training resources with appropriate training topics. VI. Compliance We used the following compliance information to determine where training will be necessary for 1997. A. Survey Responses Our representatives ranked knowledge of NASD regulations more important than 11 other products or services (from a list of 17) in terms of what was important to them. In addition, when asked "What do you feel is the biggest issue or dilemma you face as a member of the securities industry today?," 35.8% raised a concern about compliance, (suitability, disclosure, NASD or governmental regulation, etc.). While this is down from the 1995 needs analysis survey number of 47%, we feel that it is significant. B. Regulatory Mandates/Advisories The following items were brought up during either an NASD or SEC audit during the past two years. 1. Advertising/Sales Literature In 19[ ], the [Firm] submitted [number of pieces] of registered representative sales literature/advertising to the NASD for their review. All were found to be satisfactory, however, we were cautioned concerning the various rules that govern advertising, sales literature, and customer correspondence. 2. Regulation T Regulatory examiners cautioned [Firm] concerning the rules that govern receipt of customer's payment for trades no later than the second day after settlement date. 3. New Account Documentation [Firm] received a warning concerning the maintenance of proper new account documentation in the customers' files. We now have a computerized optical imaging system implemented. 4. Stock Trading Activity [Firm] received warnings in reference to: documenting unsolicited/solicited on all stock trades, indicating long/short, and the location of the security on all stock sales. C. Customer Complaints During 19[ ], [Firm] received [ ] verbal or written customer complaints. They were all resolved with no action against [Firm] or the Registered Representative. They involved suitability, taxes, a [Clearing Firm] problem, and a commission. D. Regulatory Inquiries During 19[ ], we received [ ] regulatory inquiries. [ ] were resolved with no action against [Firm], or the registered representative, [ ] are ongoing, and [ ] resulted in the arrest of third parties not related to [Firm]. The following chart lists the breakdown of issues involved:
E. Field Audits Field audits revealed trends regarding certain issues. Some representatives were unaware of disclosure requirements concerning outside business activities. In addition, some names were improperly listed in the Yellow Pages. The final issue was the use of seminar material that had not been approved. (Unfortunately, some seminar selling companies tell representatives that they do not have to notify their Compliance Department.) F. Federal and State Legislative Action The Director of Training and Education is on the circulation list of various regulatory publications in order to insure that we provide necessary training on any new regulation. As deemed necessary by the Compliance Department or any [Firm] executive officer, we will re-prioritize our training to include an issue of concern in our Training Program. G. Arbitration/Litigation In the past eighteen months, one case has been arbitrated and one litigated. The case that went to arbitration concerned an issue of suitability. The registered representative lost the arbitration hearing with the customer, however, the NASD cleared the RR of any wrongdoing. The case that was litigated involved a registered representative who sold a security not registered in a state where the RR was registered. The RR also did not notify the firm. As part of the settlement agreement with the [state securities regulator], the firm was found to have conducted securities business from a location in the state that was not registered in the state as a branch office. [Firm] was also found out of compliance with regard to designating an on- site manager to supervise the securities activities of the office. VII. Operational Issues and Non-Product Related Training Eleven percent of representatives surveyed listed technology, paperwork, consolidated statements, or other administrative issues as their primary concern. In 1996, the [Clearing Firm] Procedures Manual was a mandatory portion of the Firm Element requirement for Series 7 licensed individuals. It was extremely well received by our registered representatives and will continue to be used as a training tool (one of the two required self-study modules for new Series 7 licensees.) In addition to requiring the [Clearing Firm] module in response to last year's needs analysis, we developed a complete [Firm newsletter] issue on operations which included where to send paperwork and when payment will be received for each product. VIII. Regulatory Element Aggregate Results [Firm] representatives, as a whole, scored higher [on the Continuing Education Regulatory Element] than the industry average in all seven categories. [Firm] principals scored higher than the industry average in four out of seven categories. The areas in which [Firm] representatives scored the lowest were New and Secondary Offerings and Customer Accounts, Trade, and Settlement Practices. The three areas in which principals scored lower than the industry average were registration and reporting issues, suitability, and new and secondary offerings. IX. Industry Trends and New Product Offerings Most of our representatives sell mutual funds, variable annuities, UITs, common stocks, and traditional fixed income products in combination with insurance in a financial planning approach. New products are not as much a concern as are variations in traditional products such as mutual funds or variable annuities. Variations in products are addressed via the monthly [Firm's newsletter] to registered representatives. In addition, product self study modules will be updated at least yearly. X. Marketing The initiatives of the marketing department have included focus on specific products in addition to efforts to provide resources and sales tools for registered representatives. Limited partnerships have received focus due to the fact that a limited partnership marketing position in the firm was added in 1995 and equity unit investment trusts were featured during the second half of 1996, resulting in a rise in equity trust sales. Mutual funds, which are the primary focus of the marketing department, are featured in their own section of the [Firm's newsletter]. In addition, they were covered during 1996 with respect to the various [Firm's newsletter] themes which included risk, asset allocation, retirement planning, and estate planning. International funds and re-balancing also received attention during the past year. The [privately published] books published this year by the firm included information on mutual funds, variable annuities, variable universal life, unit investment trusts, and limited partnerships. These books include information on each product sponsor and feature a key product for each sponsor. The [internal marketing book] was published as a resource for registered representatives in order to build their business and educate them on specific areas of practice. Chapters included asset allocation, tax advantaged investing, college planning, and retirement planning as well as other areas. XI. Conclusion As was the case in 1995, both product and non-product training is a need. Training covering services and operational issues appears, in many cases, to be more important than education about the product. Operational issues, compliance issues, and financial planning services, which received high marks in the representative survey, were mentioned by employees and officers of the firm and appeared as concerns elsewhere as we performed our needs analysis. Product revenue and the representative survey responses highlight the need for training on Mutual Funds and Variable Annuities. Other products that received high ranking on the survey were equities and insurance. (Even though insurance is not a securities product, many of our representatives combine insurance with securities when serving clients.) In addition, because marketing efforts covered UITs, limited partnerships, and variable annuities during the year, training will be provided in these areas, although not required as a core module. Similar to 1995, estate planning, financial planning, and retirement planning received interest in the representative survey. Many of our representatives specialize in one or all of those fields and are continually looking for updated information in those areas. In addition, because a large amount of [Firm]'s business comes from qualified money, training on various aspects of retirement planning continues to be important. Modules on retirement plans and estate planning which were offered in 1996 will be available as an elective during 1997, but will not be mandated as part of the core requirement. All self-study modules will be revised on an annual basis and will continue to be available as a reference to our representatives. The number of representatives who cited compliance as their primary concern is significant and warrants training in compliance as part of our core training program during 1997. In addition, the issues identified on the regulatory element aggregate results and our compliance needs analysis will be included in new self- study modules or added to the material that is covered in the compliance/continuing education meeting. We will continue to make compliance a core component of our firm element training. In addition, as part of our compliance training, we will also be adding a self-study module on supervision, which will be required (a core component) for all branch managers. Lastly, because we receive the most revenue from mutual funds, focus greater marketing resources on the product, and our representatives have ranked it as highly important, we will continue to include mutual fund training as a core component for each representative. The Firm has done a thorough job of reviewing compliance areas, results from the Regulatory Element sessions taken by employees, industry trends, and marketing issues. The Firm's review enables it to prioritize training needs and tie them directly to specific training topics in the training plan. The selection of training topics is grounded in fact and is responsive to the expressed needs of the Firm and its employees and needs. PART TWO - PROPOSED TRAINING PLAN I. Overview We will conduct our Firm Element Training through modules. Each module will cover a featured product or service. There will be a core curriculum in which each covered person will be required to participate. In addition, each covered person will be required to participate in additional modules during each calendar year which he or she may chose. The Firm's Continuing Education and Training Department will also have the responsibility for ensuring that the modules chosen by each person are applicable to that person's business or function. New hires who have a Series 7 license will be required to complete the [Clearing Firm] procedures and training module as part of their orientation and core requirement. The module will also be available as an elective choice for others. In addition, a supervision module will be required as a core module for all branch managers. Mutual funds and compliance will continue to be covered during the compliance/continuing education meetings. Each representative will be required to attend one meeting each calendar year. [Firm] will reserve the right to make a self-study module mandatory for an individual based upon our analysis of his or her individual needs, or by the request of our Compliance Department. [Firm] will be responsible for the delivery of these modules and the subsequent monitoring process. We will use a combination of internally designed training materials, materials purchased from vendors, the compliance/continuing education meeting, and the [Firm] newsletter as a medium for delivery. Employees will receive training through the employee training program, which existed prior to the NASD mandate. Employee training will cover both registered and non-registered personnel. The employee program is delivered by way of live meetings and conference calls. The self-study training manuals that are used for registered representatives are also available for employees. Newly licensed Series 7 employees are required, however, to complete the [Clearing Firm] procedures manual. II. Core Training Program The core training program refers to the component of the program that is selected by [Firm]. Each individual will be required to complete four modules, however, the selection will vary based on their situation. Listed below are the three possible core requirements: A. If the covered person is a new licensee and has a Series 7 license: * Compliance * Mutual Funds * [Clearing Firm] Procedures and Operations * One elective B. If the covered person is a branch manager: * Compliance * Mutual Funds * Supervision * One elective C. If the covered person is not a branch manager or a new hire: * Compliance * Mutual Funds * Two electives D. Core Program Subject Matter 1. COMPLIANCE [Firm] holds regional meetings for the purpose of distributing information on compliance to our Registered Representatives. These meetings are mandatory. Training on compliance is conducted through case studies and an outline covering various topics. The registered representatives are asked to read each case study and discuss them as a group. The discussion is led by the Senior Vice President of Compliance, the President of [Firm] or a designated principal/branch office manager. The [Firm's newsletter] will also be used as a vehicle for dissemination of the following information. [Firm] may also use other formats such as conference calls or self-study materials to cover information on compliance. The 1997 compliance training will include, but not be limited to the following: * Change of investments in various scenarios and how they affect the client * Advertising/Sales Literature * Suitability * Customer complaints * Customer accounts and required documentation * New and secondary offerings * Ethics These issues tie back to the results of regulatory audits and Regulatory Element performance previously discussed in the needs analysis portion of this plan. 2. [CLEARING FIRM] PROCEDURES AND OPERATIONS GUIDE This self-study guide includes operational information as it relates to opening accounts, transferring accounts, and trading securities through [Clearing Firm]. This module includes examples of each form needed in order to open all types of accounts and process transactions through [Clearing Firm]. It will also include an explanation of how each form is filled out and where it should be sent. 3. MUTUAL FUNDS This module is included in the core program required for everyone that is covered under the Continuing Education requirement. We will offer three different options in which training may be completed. Option #1 Panel Discussion and Q&A Panel discussions will be used to cover topics including but not limited to, asset allocation and rebalancing, risk tolerance and suitability, and sales charges and fees. Option #2 Computer-Based Training CBT format will be used for selected individuals who were not able to attend a mandatory meeting due to health or other extenuating circumstances. This option is to be used as a last case alternative only and not as part of the regular training program. Option #3 Live Presentation This will be the primary method for mutual fund training. Topics to be covered during 1997 will include asset allocation, risk tolerance, rebalancing, and mutual fund suitability. There are some exemplary practices illustrated in Sections I and II (above). The Firm's Continuing Education and Training Department monitors whether covered individuals chose modules that are applicable to their business or function. This will keep representatives on track with appropriate training. The Firm's commitment to providing training to both registered and unregistered persons is also admirable. The Firm is drawing on a range of delivery options, rather than trying to meet all training needs in a single format. For example, some training needs are met by self-study and conference calls. Others may best be addressed in small group discussions. Finally, the Firm has outlined a plan that requires core training and allows for some choice of electives so that individuals can tailor a program to meet their particular interests and needs. III. Elective Modules The elective modules will be self-study, however, delivery media will vary by product. Most self-study modules will be workbooks, however, modules may also be offered by way of computer disk, [Firm newsletter], or other medium. Because each person must complete four modules, but will have a differing core requirement, he or she will chose either one or two of the following elective modules. Variable Annuities This self-study guide covers general investment features, advantages, risks, and suitability of variable annuities. Trade Settlement This module will cover operation information regarding how a trade is placed, processed, and then settled. It will include information on workflow, variations in settlement by product, and NASD rules regarding trade settlement. In addition, variations to the norm (stock splits and dividends) and exception processing will be covered. Estate Planning Although this is not a [Firm] offered "product," it scored significantly high in the needs analysis survey. We will continue to offer the self-study module that was distributed in August 1996 on estate planning. This module covers estate taxes, the use of trusts, insurance and other estate planning vehicles, fiduciary responsibility, elder care options, registration of accounts, estate asset valuation, and the use of various products when doing estate planning. Stock Trading This self-study guide covers general information on equities. It also includes an explanation of Nasdaq and the listed exchanges, how orders are placed and executed, and suitability and risk information. Unit Investment Trusts (UITs) This self-study guide covers general investment features of UITs, how they trade, differences between UITs and mutual funds, distributions, risks, suitability, and how to place orders. We will update this guide in 1997 with an insert featuring more information on equity UITs. Retirement Plans This module will be completed by computer-based training or as self-study module on qualified plan distributions. Economic Indicators This self-study guide provides information on selected economic data, impact on financial markets, and where a registered representative can find this information in various financial publications. Limited Partnerships This module is a self-study workbook. It includes information on the general investment features of LPs, possible sources of revenue in a LP tax consequences, risks of LPs, suitability, and processing applications at [Firm]. Insurance This module will consist of a self-study workbook on Variable Universal Life (VUL). Covered topics include policy mechanics, costs and expenses of VUL, death benefit options, investment management, VUL funding, and modified endowment contracts. IV. Industry-Sponsored Training and Education Programs Continuing Education under the following programs may satisfy one portion of [Firm]'s Firm Element Training Program as long as the subject matter relates to the business activity of the registered representative. A Registered Representative who wishes to have his/her participation in one of the programs listed below counted as one part of the four part requirement must send a copy of the course outline or certificate to [name], Director of Training and Continuing Education.
Firms may utilize training received in other continuing education or training programs for other licenses or professional designations as a part of its plan. Such training should be consistent with the needs analysis developed for the securities business of the Firm. Also, if included in its training plan, a Firm must adopt means to ensure that these other licenses or professional designations meet the standards prescribed in the Firm's needs analysis. V. [Firm's Internal Electronic Bulletin Board] In 1997 we will increase the use of the [electronic bulletin board] system by using it for training. On a periodic basis, various product and operational information will be posted on the bulletin board. A question/answer section will follow the training material. The representative may print out and return the Q&A sheet to the Training Department for credit. The representative may count this as one of his/her elective modules for the Firm Element. This will allow us to cover topics such as broker/dealer changes, looking up commissions, new product information areas that by themselves are not large enough for a separate self-study manual. It will also increase our on-line communication with the registered representatives. An electronic bulletin board can be used creatively not only as a medium for delivering "ad hoc" continuing education as described here, but also to facilitate receiving feedback about the utility of Firm Element training. Prompt feedback about training may enablethe Firm to make beneficial adjustments to its training programs. VI. Tracking [Firm]'s Director of Training and Continuing Education will have responsibility for monitoring and recording Firm Element training on the [Firm's proprietary] database. A separate record will be maintained for each person. It will include proposed training for the calendar year, documentation of materials and correspondence that has been sent, and documentation of completion for each module of the Firm Element Training. Although it will be the responsibility of each participant to return the material (disk, question and answer sheet, etc.) for satisfaction of the requirement, [Firm] will periodically produce status reports that will be distributed to senior management and/or branch managers upon request. These reports will show which modules have been completed by each person in question. In addition, the Training Department will produce a report for the President and Senior Compliance Officer at the end of each quarter listing individuals who have participated in few or no modules so that action can be taken at the senior level. Tracking representatives' progress through the Firm's Firm Element training provides documentation of implementation to the Firm and allows it to monitor individual progress. Frequent reports to senior management, as described here, are a critical aspect of the Firm Element. The data collection mechanism could be another vehicle for gathering feedback to help with the next needs analysis. VII. Annual Needs Analysis [Firm] will continue to use the above format for its NASD continuing education needs analysis (survey, evaluation of compliance, revenue, and marketing, etc.). The needs analysis will be completed by December 31st each year and cover information obtained for that year, or in certain instances, the past two years. VIII. Conclusion [Firm]'s Firm Element Training program has been designed to meet the goals of creating company-wide unity and enhancing the professionalism of each registered individual. Our high response rate to our Needs Analysis provided us with the optimistic view that our people welcome training and the broader horizons that come with new knowledge. We feel that our training program addresses the specific needs for our registered people in a simply delivered format. In addition, it provides the flexibility for future revisions and changes as our needs grow and change. As a firm, we also see the importance of using this as a forum for new product introductions, dissemination of important compliance information, the opportunity for cross-selling, and the opportunity to focus on the highest standards of ethical communication to our clients. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
