dfi-sec010_EmR0829.pdf Financial Institutions-Securities – Creates Ch. DFI-Sec 10 – EmR0829
DEPARTMENT OF FINANCIAL INSTITUTIONS-DIVISION OF SECURITIES
ORDER ADOPTING EMERGENCY RULES
To amend s. DFI-Sec
4.06(2)(i) and to create ss. DFI-Sec 4.06(1)(v), 5.06(14), Chapter DFI-Sec 10,
and DFI-Sec 10.01 and 10.02 of the Rules of the Division of Securities relating
to making it a dishonest or unethical practice for securities licensees to make
use of misleading designations or certifications purporting to demonstrate
special expertise in the financial or retirement needs of seniors.
Statutory Authority: Sections 551.34(1)(g), 551.63(1) and (2), and 551.67, Wis. Stats.
Statute Interpreted: Section 551.34(1)(g), Wis. Stats.
The Division of Securities of the Department of Financial Institutions for the State of Wisconsin finds that an emergency exists and that the attached rules are necessary for the immediate preservation of the public peace, health, safety or welfare. A statement of the facts constituting the emergency follows:
The Division is taking immediate, emergency-rule action to protect seniors in Wisconsin from being misled through the use by securities licensees of designations and credentials that imply or represent that a person has special expertise, certification, or training in financial planning for seniors, but where such designations and/or credentials are either non-existent or do not involve significant education, testing, training or experience, and in reality are marketing ploys.
The Division's rulemaking is based on a “Model Rule On the Use of Senior-Specific Certifications and Professional Designations”, developed by the North American Securities Administrators Association, Inc. ("NASAA Model Rule"), and adopted by the NASAA membership, including Wisconsin, on March 20, 2008. The Wisconsin rule-making involves amending the list of “dishonest or unethical business practice” provisions applicable to broker-dealers, agents, investment advisers and their representatives to provide that the misleading use by licensees of senior designations or certifications -- as particularized in the rules -- can be a basis for denial, suspension or revocation of a license.
Because
the "senior designation/certification problem" is current and
ongoing, and represents a serious source of potential harm for seniors in
Wisconsin, the Division is using the emergency rule-making procedures to adopt
the NASAA Model Rule to be able to have such rule in place immediately to protect
Wisconsin seniors, rather than using the regular, permanent rule-making process
which requires a 5-6 month process to complete.
Additional justification for taking emergency rule-making action at this time relates to the discussion in the following paragraphs which describes the need for acting on a uniform, Model NASAA Rule basis, and the involvement of U.S. Senator Herb Kohl who has expressed interest in this problem and has introduced federal legislation to promote action by individual states to adopt the uniform, NASAA Model Rule.
The background of the
discovery by NASAA of the current and ongoing "senior designation"
problem and development of the NASAA Model Rule began in 2004 when licensing
examiners for the Securities Divisions in a number of states across the U.S.,
including Wisconsin, noted while conducting office examinations of securities
professionals that some securities agents and advisers were using sets of
various, new acronyms in their marketing materials. Such acronyms relate to numerous
different certifications or designations to make it appear that the salesperson
has special qualifications or specialized education in addressing the needs of
senior citizens or retirees in areas of finance, financial planning, estate
planning, or investing, and thus are used by those licensees to provide an edge
in attracting seniors who are nearing retirement, or are in retirement, to
become clients/customers.
Shortly after NASAA detected the misleading senior certifications/designations
problem, Senator Herb Kohl of Wisconsin, who chaired (and continues to chair)
the US Senate Committee on Aging, called a series of hearings in 2006 on
various aspects concerning older investors, one of the results of which was
Senator Kohl's interest in creating federal legislation to limit the use of
misleading certification/designations. However, based upon NASAA’s intent to
create a model rule for its members to adopt on a uniform basis throughout the
states, the Senator instead drafted legislation that recognizes the need for
developing a uniform, model rule, and which rewards individual states for
adopting such a model rule.
The need for uniform
treatment in dealing with the problem was highlighted by a few states who
undertook separate rule-making actions using divergent approaches in 2007
(before the NASAA Model Rule was completed), thus creating difficulties for
large securities firms with brokers and advisers across the country trying to
comply with non-uniform approaches to the problem. Those firms, justifiably,
have asked for a single, uniform rule that would make it possible to design
systems to facilitate compliance throughout all state jurisdictions. Several
states have already adopted the NASAA Model Rule, including Virginia,
Washington, New Hampshire and Alabama.
The NASAA Model Rule being adopted in Wisconsin covers a broad array of
practices. It prohibits licensees from using any non-existent or self-conferred
certification. Also prohibited would be any designation that "indicates
or implies a level of occupational qualification obtained through education,
training, or experience" that the person doesn't actually have.
Furthermore, the proposed rule would disallow designations obtained from
organizations that are "primarily engaged in the business of instruction
in sales and/or marketing.” Additionally, reasonable standards for competency
would be required, along with monitoring designees and minimum
continuing-education standards. Also included is a listing of nationally
recognized accrediting agencies whose accreditation of an organization would
not be disqualified under the Model Rule.
Pursuant to sections 551.34(1)(g), 551.63(1) and (2), and 551.67, Wis. Stats., the Division of Securities of the Department of Financial Institutions adopts emergency rules as follows:
SECTION
1. DFI-Sec 4.06(1)(v) is created to read:
DFI-Sec 4.06(1)(v) Using any term or
abbreviation thereof in a manner that misleadingly states or implies that a
person has special expertise, certification, or training in financial planning,
including but not limited to, the misleading use of a senior-specific
certification or designation as set forth in Chapter DFI-Sec 10.
SECTION 2. DFI-Sec 4.06(2)(i) is amended to read:
DFI-Sec 4.06(2)(i) Engaging in any of the practices specified in sub. (1)
(a), (b), (c), (d), (e), (f), (g),(h), (o), (p), (q), (r) and ,
(t) and (v) .
SECTION 3. DFI-Sec 5.06(14) is created to read:
DFI-Sec 5.06(14) Using any term or abbreviation thereof in a manner that
misleadingly states or implies that a person has special expertise,
certification, or training in financial planning, including but not limited to,
the misleading use of a senior-specific certification or designation as set
forth in Chapter DFI-Sec 10.
SECTION 4. Chapter DFI-Sec 10 is created to read:
Chapter DFI-Sec 10 USE OF SENIOR-SPECIFIC CERTIFICATIONS AND PROFESSIONAL
DESIGNATIONS.
SECTION 5. DFI-Sec 10.01 and 10.02 are created to read:
DFI-Sec 10.01 Purpose of chapter. The rules in this chapter apply to the use of senior certifications and designations.
DFI-Sec
10.02 Use of Senior-Specific Certifications and Professional Designations. (1) The use of a senior specific
certification or designation by any person in connection with the offer, sale,
or purchase of securities, or the provision of advice as to the value of or the
advisability of investing in, purchasing, or selling securities, either
directly or indirectly or through publications or writings, or by issuing or
promulgating analyses or reports relating to securities, that indicates or
implies that the user has special certification or training in advising or
servicing senior citizens or retirees, in such a way as to mislead any person
shall be a dishonest and unethical practice in the securities, commodities, investment,
franchise, banking, finance, or insurance business within the meaning of s.
551.34(1)(g), Stats.
(2) The prohibited use of such certifications or professional
designation includes, but is not limited to, the following:
(a) Use of a certification or professional designation by a person who has not
actually earned or is otherwise ineligible to use such certification or
designation;
(b) Use of a nonexistent or self-conferred certification or professional
designation;
(c) Use of a certification or professional designation that indicates or
implies a level of occupational qualifications obtained through education,
training, or experience that the person using the certification or professional
designation does not have; and
(d) Use of a certification or professional designation that was obtained from a
designating or certifying organization where any of the following criteria are
present:
1. The organization is primarily engaged in the business of instruction in
sales or marketing or both.
2. The organization does not have reasonable standards or procedures for
assuring the competency of its designees or certificants.
3. The organization does not have reasonable standards or procedures for
monitoring and disciplining its designees or certificants for improper or
unethical conduct.
4. The organization does not have reasonable continuing education requirements
for its designees or certificants in order to maintain the designation or
certificate.
(3) There is a rebuttable presumption that a designating or certifying
organization is
not
disqualified solely for purposes of par. (2)(d) above when the organization has
been accredited by any of the following:
(a) The American National Standards Institute.
(b) The National Commission for Certifying Agencies.
(c) An organization that is on the United States Department of Education’s list
entitled “Accrediting Agencies Recognized for Title IV Purposes” and the
designation or credential issued therefrom does not primarily apply to sales or
marketing or both.
(4) In determining whether a combination of words (or an acronym
standing for a combination of words) constitutes a certification or
professional designation indicating or implying that a person has special
certification or training in advising or servicing senior citizens or retirees,
factors to be considered shall include, without limitation, the following:
(a) Use of one or more words such as “senior,” “retirement,” “elder,” or like
words, combined with one or more words such as “certified,” “registered,”
“chartered,” “adviser,” “specialist,” “consultant,” “planner,” or like words,
in the name of the certification or professional designation.
(b) The manner in which those words are combined.
(5) For purposes of this rule, a certification or professional
designation does not include a job title within an organization that is
licensed or registered by a state or federal financial services regulatory
agency, when that job title does either (a) or (b) below, or both:
(a) Indicates seniority or standing within the organization.
(b) Specifies an individual’s area of specialization within the organization.
(c) For purposes of this subsection, the term “financial services regulatory
agency” includes, but is not limited to, an agency that regulates
broker-dealers, investment advisers, or investment companies as defined under
the Investment Company Act of 1940.
(6) Nothing in this rule shall limit the division’s authority to enforce
existing provisions of law.
EFFECTIVE DATE
The emergency rules adopted by this Order shall take effect upon publication of the rules in the official state newspaper pursuant to the provisions of s. 227.24(1)(c), Stats.
Dated at Madison, Wisconsin, this __ 11th ___ day of September, 2008.
