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Hiring a new employee can be challenging in any environment, but it’s even harder in the securities industry—not only does the employee have to be the right choice for the firm, she must also pass muster with the securities regulators who approve registration. In reviewing an application for registration, the regulators focus on three key aspects: proficiency, integrity and solvency.

Proficiency

Applicants must have the proper education, training and experience to match the requirements set out in securities legislation for the particular category of registration they are applying for. Dealing Representatives (DRs) of an Exempt Market Dealer (EMD) must have completed either the Canadian Securities Course (CSC) or the Exempt Markets Products Exam (EMP). There is no requirement to have any previous work experience, just the course completion. If registering through a Portfolio Manager (PM), Associate Advising Representatives (AARs) must:

  • have the CIM or CFA designations; or
  • have completed CFA’s Level I Exam and have 24 months of Relevant Investment Management Experience (RIME).

Advising Representatives (ARs) must have either the CIM and 48 months of experience, or the CFA and 12 months of experience. The course requirements are straightforward in that you either have them or you don’t; interpretation comes into play when examining a prospective employee’s work experience to determine whether she has the relevant experience.

RIME

Relevant work experience is composed of the ability to perform research and analysis, and to apply it to portfolio selection. The firm must evaluate a potential applicant’s experience in light of the regulations. Here are some tips for applicants.

  • There’s a difference between industry experience and RIME. Having worked in corporate finance or as an analyst does not necessarily mean the candidate meets the requirements. For someone like this, regulators may only approve the applicant as an AAR until she gathers the necessary portfolio selection experience.
  • Regulators require letters of confirmation from former supervisors to back up any claims the candidate makes about past experience, so ensure whatever information is filed on the National Registration Database (NRD) is verifiable.
  • Candidates must apply for registration either within 36 months of having taken the necessary courses from when they were last registered in a relevant category, or have 12 months of relevant experience within the last 36 months to maintain the validity of their courses.
  • Regulators may entertain exemption applications if the applicant’s industry background does not meet the rules as they are written. But, while many years of relevant experience may make up for a lack of courses, no amount of extra book knowledge can make up for a lack of work experience.

Integrity

Regulators expect that a registrant will act fairly, honestly and in the best interests of their clients—so they must assess the integrity of applicants. This means asking whether the person has ever been investigated by any regulatory body, or been subject to any public proceedings. They also want to know whether she has been involved in any criminal or civil proceedings.

All this information is reviewed in light of assessing the applicant’s character. Further, applicants must disclose whether any non-securities regulators, such as FSCO for insurance and mortgage brokers, regulate them.

This forms part of an applicant’s disclosure about her Outside Business Activities, which may impact how she deals with her clients and the investment recommendations she makes. This includes if she serves on the board of directors of any company, or if she has any other type of relationship with an affiliate.

Solvency

Applicants must reveal on NRD whether they have ever declared bankruptcy, insolvency or are subject to garnishment.

Regulators use this information to assess an applicant’s financial condition. This forms part of the overall process to assess an individual’s suitability for registration, as someone who has had financial problems may not be suitable for registration. Having had this occur does not automatically disqualify someone from being registered—regulators understand that personal events, such as divorce, may lead to bankruptcy. It may simply mean that an individual may be approved, but require closer supervision  by compliance.

When hiring, a firm obviously wants to employ individuals who will be a good fit, do their job effectively and help the company succeed. However, compliance should be involved in the process by conducting background checks and reviewing an applicant’s education, experience and overall fitness for registration. A firm doesn’t want regulators to unearth problems in the applicant’s past, so make the decision as straightforward as possible.

Jonathan Heymann is President of Wychcrest Compliance Services Inc., a consulting firm specializing in securities compliance and registration.

Originally published in Advisor's Edge Report

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