WASHINGTON -- A key industry panel Friday rejected a plan requiring brokers to pass periodic competency exams, but recommended they participate in mandatory training programs to brush up on job skills.
The Securities Industry Task Force on Continuing Education, chaired by William Simmons, executive vice president of municipal securities and unit investment trusts at Dean Witter Reynolds inc., made the recommendation in a 15-page report delivered to six industry regulators last week.
The self-regulatory groups will use the recommendations, which they are expected to adopt shortly, to develop the first uniform standards for ongoing education of brokers and dealers.
Among the the six regulators are the Municipal Securities Rulemaking Board and the National Association of Securities Dealers. The groups said in a press release Friday that they will begin developing a nationwide continuing education program before the end of the year.
Simmons' task force went against a controversial NASD recommendation that securities professionals be required to pass periodic exams demonstrating their understanding of the securities markets if they wish to maintain their registration.
"We were not able to get uniformity on [the test] approach, " Frank J. McAuliffe, vice president for qualifications and membership at the NASD, said Friday. "So we decided to look at it with fresh eyes. That's why the industry task force was formed."
Many firms object to mandatory testing, warning of costs and administrative burdens, particularly for smaller broker-dealers. Others feared potential litigation from brokers who fail a test.
Regulators are pushing for uniform continuing educational standards because of the barrage of increasingly complex products, such as municipal derivatives, available to investors.
The task force recommended a two-part program of continuing education. Under one part, brokers' knowledge of federal rules on sales practices and other key standards would be informally tested using an "interactive" computer program that would be developed by a standing committee of industry representatives and regulators.
"You would sit in front of a computer [with software] almost like a board game," said one task force member, who asked not to be identified. "If you don't get the answer right, it leads you back through a loop of information until you reach the correct answer. You learn as you go through it. There's no pass-fail. After the second or third attempt, it will give you the answer. "
The test would be administered two years after a broker begins selling bonds, again three years later, and then five years after that. A broker's registration could be suspended if he or she fails to participate in the program.
Under the second part of the program, firms would develop and administer annual tests that focus on the specific types of products they sell. Many firms, particularly larger broker-dealers, already provide routine training of brokers, industry observers say.
Heather Ruth, president of the Public Securities Association, which has been watching the task force's deliberations, was unavailable for comment Friday.
The task force includes representatives from Dain Bosworth; Dean Witter Reynolds; A.G. Edwards & Sons; Goldman, Sachs & Co.; Edward D. Jones & Co.; Lehman Brothers; and Merrill Lynch & Co.
The recommendations were sent to the American, New York, and Philadelphia stock exchanges; the Chicago Board Options Exchange; and the MSRB and NASD.
