The Financial Adviser Standards and Ethics Authority has held its first FASEA exam. Phil Anderson analyses what the advice community has learned from this experience.
In late June, around 600 eager financial advisers completed the first round of the Financial Adviser Standards and Ethics Authority (FASEA) exam. They now nervously await the results, which from all reports won’t be available for a few weeks.
We don’t have a clear idea about who these people are because FASEA has not yet released any information about them, but we suspect they are a group of well-educated advisers, sure of their own ability and their knowledge of the financial advice profession. No doubt they are advisers with prior exam experience, who have been in the profession long enough to have the confidence they know what they are doing.
The Association of Financial Advisers (AFA) wanted to run a meeting with these first-round candidates with the ultimate aim of helping others learn from their experience. Unfortunately, however, the candidates are not permitted to speak about that experience or about the exam questions. This point was made in both the exam documentation and reinforced verbally as part of the introduction on the day.
FASEA’s brief is to set adviser education, training and ethical standards, so this approach seems counterintuitive. Sharing the exam experience would not only help advisers prepare for the exam, it would also provide valuable insights into what is expected of them more broadly in terms of meeting those education, training and ethical standards. Past exam papers provide extensive learning opportunities and, once expired, it makes sense to us that they be shared with the advice community, in the same way that, for example, past papers are made available for HSC, VCE and even some university exams.
The information we have received about the exam so far has, not surprisingly, been very muffled. The key feedback is about the candidates themselves, that they are predominantly younger advisers. There seems to be less grey hair in the exam room. Some of the other feedback is that while there is sufficient time to complete the exam, there are a lot of questions specific to the Corporations Act and you will need to be good at toggling between the various preloaded reference materials. This may be quite challenging for older advisers and we need to find a way to equip them with the skills they need to do this so they feel comfortable with it.
It is interesting to reflect upon why first-time candidates chose to sit the exam so early on. As well as the time involved in studying, there is a $540 plus goods and services tax fee to sit the 3.5-hour exam. If a candidate fails, they can apply once for a review of the marking of the written response-style questions, however, the review attracts an additional fee.
Given the time and money costs, what motivated these initial 600 people to do the exam now, presumably before they had the chance to complete courses on, for example, the code of ethics/code monitoring and legal obligations, which might be considered prerequisites?
As it is a requirement for all financial advisers to complete the code of ethics course, it would seem to make sense to do it before sitting the exam. While the FASEA code of ethics has been out since February, there are still some very big questions surrounding some of the standards, in particular, standard three, which is about not advising, referring or acting in any way where the adviser has a conflict of interest.
The financial adviser community is currently under a lot of stress. Completing the exam is just one more thing on a mountain of other items that include meeting other education requirements, revenue pressures and mounting costs.
Phil Anderson
This is a really challenging issue for anyone with a close understanding of financial advice. We have seen commentary suggesting Standard 3 should exclude asset-based fee arrangements. If interpreted literally, it should also exclude life insurance commissions and grandfathered commissions, both of which have always been perceived as conflicted remuneration and therefore a conflict of interest. Then there are the broader product and service-related conflicts that exist in financial advice and financial services.
FASEA has promised guidance on the interpretation of the code of ethics standards. The industry is really going to need this information in order to understand how FASEA expects the code to be interpreted. However, those sitting the first round of the FASEA exam obviously did not have this guidance.
Completing the legal obligations course is also critical to understanding what might be in the FASEA exam. The exam and the course are both expected to cover:
- Chapter 7 of the Corporations Act,
- the Privacy Act,
- the Anti-Money Laundering and Counter-Terrorism Financing (AML/CTF) Act, and
- the Tax Agents Services Act.
Some advisers may have previously studied some elements of these pieces of legislation, however, it is less likely they will have studied them all.
Of concern is that the guidance around these acts lacks any specificity. For example, it includes two links for chapter seven of the Corporations Act, with the first referring to the first half of Chapter 7 and the second referring to the second half of Chapter 7 and also Chapters 8 and 9. Chapter 7 equates to almost 900 sections of the Corporations Act.
Advisers studying for the exam would benefit from more specific guidance on which of these almost 900 sections they needed to understand in order to prepare for the exam. They certainly did not get it from the preparation guidance reading list.
The same thing applies when it comes to Privacy Act and AML/CTF Act. There has been some suggestion the completion of all the material on the guidance reading list came to around 3500 pages. Could any adviser, with an ongoing business and a family to look after, realistically be expected to read (let alone retain) all this material in preparation for the exam? It is unrealistic and impractical for anyone other than a speed reader with a photographic memory.
The key feedback is about the candidates themselves, that they are predominantly younger advisers. There seems to be less grey hair in the exam room.
Phil Anderson
We have previously made it clear we consider the 12 practice questions released by FASEA unsatisfactory. The questions set up an aged-care/estate planning scenario that lacked clarity around whether an enduring power of attorney was in force and whether the client had lost capacity. We also received a lot of feedback on the questions, including they were subjective or there were multiple correct answers.
FASEA informed us these questions were issued in order to give candidates a sense of the type of questions and their format. At the time of the first exam, FASEA had not reissued these practice questions and there were no additional practice questions available to help advisers in their preparation. Ideally they should have had a full-length exam to test themselves on.
So we come back to the fundamental question around how prepared these first-round candidates were for the exam and what motivated them to sit it. Was taking the exam, before having the opportunity to complete prerequisite courses and before receiving greater clarity and guidance from FASEA, a good idea?
The financial adviser community is currently under a lot of stress. Completing the exam is just one more thing on a mountain of other items that include meeting other education requirements, revenue pressures and mounting costs. Financial advisers are good planners. Perhaps these candidates were looking to take one of these challenges off their plate at this time so they could focus on doing what they are supposed to do – run a financial advice practice that makes a difference in the lives of their clients.
We are receiving a lot of more general questions about sitting the exam, including from people about whether they can get assistance where they have a particular health consideration or other limitation. We believe so, but what this looks like is still unclear and it seems that you have to apply after you have registered for the exam.
Others are concerned about the implications for someone who is remotely based. Australia is a very big country and getting to an exam centre will be very difficult and costly for some. FASEA has promised that next year remotely based advisers will be able to sit the exam online, however, what are the issues and potential risks with this option?
We will all be very interested to see how this first group of candidates fare, what FASEA will do to help those who don’t pass on their first attempt and what they will do to help prepare the next group – but it is unclear how much information FASEA will be prepared to share.
The AFA is advocating for financial advisers to be given more exam guidance and more time to pass the exam, so they can undertake the necessary study to best prepare for the exam. In our view, the exam deadline should be pushed out 12 months to 31 December 2021.
We are also calling on FASEA, in the interests of improving adviser education, training and ethical standards, to allow those who have sat for the first FASEA exam to share their experience to help their colleagues to prepare for what is going to be one of the most critical tests in their professional lives.
