MA firms qualifying principals in large numbers

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Municipal advisor firms are qualifying multiple representatives as principals ahead of an upcoming test deadline, with some smaller firms qualifying most of their staff.

Municipal advisors are deciding who should be principals in the months ahead of the November deadline to take and pass the Series 54 exam. The exam is a requirement for any professional designated as a “principal” at his or her firm. MA firms are required to have at least one designated principal at a firm under Rule G-44, on supervisory and compliance obligations of MAs.

The MSRB began its Series 54 pilot exam from March to July 2019. Nearly 600 representing 250 firms took the exam. The passing score for Series 54 exam is 70%.

“Anecdotally, I can say that everyone I’ve spoken to who admitted taking the pilot has passed,” a municipal advisor said.

The Municipal Securities Rulemaking Board asked the Securities and Exchange Commission to approve a rule change to require MAs to take the principal exam. Before, all MAs had to pass a Series 50 test in order to register. The total cost to take the Series 54 test is $265.

Three of the five MAs at the American Deposit Management Co., an independent MA firm, will be taking the Series 54 exam, said Robert Zondag, CFO and co-managing partner. The three are all MA principals.

“When you’re a smaller firm, sometimes the capability of having many people licensed with the 54 is an excellent tool to have,” Zondag said. “I don’t think you can go wrong by having people have more knowledge.”

The number of qualified principals will not be posted on the MSRB’s website, Gail Marshall, MSRB chief compliance officer, told The Bond Buyer in October. Currently, the number of registered professional MA representatives is listed.

Marshall had said she wouldn’t want participants to make the wrong analysis that more supervisors would make for a better firm.

Some MA firms are deciding who takes the exam and qualifies as a principal based on their compliance structures.

“Supervision and compliance go hand in hand,” said Larry Kleeman, an attorney and MA at Ranson Financial Group in Wichita, Kansas.

Out of Ranson's three MAs, at least two of those in principal roles, including Kleeman, have or plan to take the Series 54 exam. Kleeman is the firm’s chief compliance officer. MSRB Rule G-44 requires each MA firm to designate a chief compliance officer.

“It’s always good to have backups in every position, whether your firm is large or small,” Kleeman said.

Beth Warren is a principal at Ranson and said if she doesn’t pass the exam, Kleeman would be the firm’s sole principal. Warren plans to take the test in February or March.

Generally speaking, firms should decide who is taking the Series 54 exam based on the nature of their compliance programs, said Leo Karwejna, managing director and chief compliance officer at PFM, a large MA firm.

Business and compliance leadership should generally be aligned in decision-making as it pertains to activities or practices, Karwejna added, and a principal would need to understand the connection between the business interests and the compliance program.

More often than not, leaders in the firms will take the Series 54 exam, Karwejna said.

People should not wait until the last minute before deadline to prepare, and by the third or fourth quarter of fiscal year 2020, firms should seek to have at least one principal or more, Karwejna said. Smaller firms may want to consider having more than one principal in planning for unexpected, real-world, circumstances or when thinking about succession planning, Karwejna added.

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