Adviser Education Standards

Phil Anderson, Acting CEO and GM Policy and Professionalism at the AFA, talks with Riskinfo about the challenges presented by the new minimum education standards regime, and how his organisation is working to have the experience of long-serving industry professionals recognised by the regulator.

 

This CPD quiz is based on a March 2021 interview conducted by Riskinfo with Acting AFA CEO and General Manager – Policy & Professionalism, Phil Anderson. Scroll down for the full transcript.

Peter Sobels

Today we are looking at education standards for advisers, and risk advisers in particular. Phil, can you start by giving as a review of what the minimum education standards are now required of advisers?

Phil Anderson

The whole issue of education standards has been one that has been bubbling away for over 10 years.

It culminated in a report by the Parliamentary Joint Committee Corporations and Financial Services in 2014, which recommended the introduction of a degree requirement for new advisers, and an exam, and a code of ethics (for current advisers). It was a broad package.

It wasn’t until February 2017 that the legislation was actually passed, and that legislation required a range of things including that all advisers would need to pass an exam, and that they would need to achieve what’s described as ‘degree equivalent’ status.

That was the framework of it, but the detail was left to be resolved by the Financial Adviser Standards and Ethics Authority (FASEA), which was created as a result of the legislation. Then there was a process of consultation around each of the core elements of the professional standards regime, and we are concentrating today on the exam and the education standard.

It was agreed that the exam would be a general exam, rather than a technically focused exam, and we argued strongly that we didn’t want to see an exam that would require technical expertise to get the questions right, and therefore you didn’t need to know social security details or tax details, but a general understanding of the obligations of financial advisers.

Ultimately, FASEA has put an exam in place that contains three core areas:

  • Legal obligations
  • Ethical considerations
  • An understanding of the advice process

Advisers initially had until the end of 2020 to pass that exam, but the government announced in August 2019 that it would provide a 12-month extension, so there is a deadline of the end of 2021.

The progress with the exam to date is based upon the January-February (2021) exam, so far approximately 57 percent of registered advisers have passed the exam. But we have been observing that the pass rates have been progressively declining, and we are certainly very concerned about that.

The (March) announcement that the pass rate from the January-February exam of 67 percent is a lot lower than was the case in the November-December (2020) exam.

There has been a lot of push-back across the sector in terms of the appropriateness of the exam and more recently the stockbrokers have been quite outspoken because their view is that stockbrokers don’t operate in the broader financial advice space.

We have also been concerned about this in terms of life insurance advisers where they are specialists in one area and the exam, if it was going into detail of superannuation and investments, then it may be going into areas that they simply do not understand. There are certainly areas of the Corporations Act, such as a fee disclosure statement, that life insurance advisers have to deal with. So that’s where we are up to in the exam.

In terms of the degree equivalent, ultimately FASEA decided to put a standard in place that was an eight-subject graduate diploma with credit for certain previous study. Credits are available for what they describe as relevant degrees, non-relevant degrees, advanced diploma in financial planning or equivalent, and professional designations.

We remain concerned that they haven’t, despite the reference to this in the explanatory memorandum to the Bill, given recognition for diploma level study, CPD, or other technical study that might be offered by licensees for example.

This is clearly spelled out in the explanatory memorandum, but it has not yet been delivered, so the concern is that a lot of those who came into the profession a long time ago, did the study that was required at that time (none of which is recognised) and they’ve done CPD since – which also is not being recognised.

So, the deadline for degree-equivalent is the end of 2025, and I think advisers are more focused on the exam than they are on the study and we will wait to get new numbers on the number of people who are actually in the process of completing this study. But our concern is that some are leaving it late if they intend to achieve it, and our concern is that some have chosen not to.

We would like to make sure that everything is done to encourage as many advisers as possible to commit to doing the study, and give them a proposition that is attractive for them to want to stay in financial advice.

Peter

Do you think that while there may be a valid argument for more targeted exams for advisers that specialise in a particular area of advice that the horse has bolted, and that the exam will now remain until the end of 2021? And what assistance is out there for advisers who haven’t undertaken the exam and who has yet to work through their minimum education standards?

Phil

Has the horse bolted? I think the horse is on the track, and is probably turning the bend and heading to the final straight.

We have to view this in the context of what’s happening with FASEA. It is now expected to be wound up over the course of the next six months, so can we expect that FASEA will make changes to the exam? I think that is highly unlikely.

I think that advisers should not operate on the basis that there is going to be a change because there has not been any evidence to suggest the government, or parliament for that matter, is prepared to make further changes – having already given a 12-month extension.

So, I would encourage people to think about completing [the exam] this year and put in place plans to start sitting it as soon as possible, to give yourself as many chances as you possibly can.

One thing I would say is that we will be watching it very carefully. We are concerned about the results from the January-February 2021 exam, and we will be talking with government on a regular basis about the status of this over the course of this year, and if the progress is slow then we will be raising those alarm bells.

With regard assistance…Kaplan and The TAL Risk Academy are providing courses to assist people in preparing for the exam and that has been very useful for the people who have done that, and we congratulate both of them for that. Kaplan is offering a free course, and TAL’s is very well priced, and that money goes to charity. I think we have to recognise the contribution of these two firms.

And we have to also recognise that this is incredibly challenging for people to be told they need to sit an exam to continue to do what they have been doing professionally for many years, so the assistance is really important.

The other thing that’s important right now is that FASEA has significantly ramped-up what it is doing to help advisers get through the exam. It is now running a webinar in advance of the exam being operated, and that’s to help explain how the exam operates and to take people through the process.

It is about how you should respond to the exam. Not about how you should manage your stress levels and prepare for it. It’s about understanding the questions that are asked. We are getting lots of feedback from people who are over-thinking the questions, we are also getting feedback that people are getting too stressed in the environment and that is something they need to be thinking about in advance – to keep themselves relaxed and in the right frame of mind. That can be a material challenge.

The AFA is also providing support for our members, we have been dealing with questions for members, providing information, we are bringing our members’ attention to the resources that are out there, to encourage them as much as we can to do the training in preparation for the exam, but we are always here to answer questions.

We have been speaking with a number of people who have failed the exam on more than one occasion and just trying as much as we can to help them know about the resources that are available – and I guess give them more confidence.

Peter

Can we take a look at the ethics component of the exam and the ethics requirements in terms of the minimum education standards. There is industry feedback that suggests that passing that part of the exam only suggests that you are good at passing an ethics exam, but does not make you more ethical.

Phil

That’s a fair comment. You can be incredibly smart but be unethical. I think there is value in the ethics exam if you understand what the ethical expectations are, and it might challenge practices you may have seen in the past.

But there is no silver bullet here. It does not instantaneously address the intent to commit misconduct.

Peter

The other element in terms of industry feedback that you have already covered is that a lot of advisers are saying they have been advising for many years and that needing to pass the exam is not going to make them a better adviser, and they question why they should be required to pass the exam to continue advising.

I guess that’s the debate that has already taken place, but do you identify at all with that view?

Phil

I do. But the decision by the government about the exam is locked in and isn’t going to change.

I have been doing this professionally for a long period of time, and ultimately, I guess we would be comfortable with an end outcome where those who fundamentally did not understand what they are supposed to be doing would end up leaving the industry, as opposed to those who are genuinely professional and they won’t be just pushed out because they didn’t quite get to the mark that they needed to get.

Peter

Finally, the adviser has passed their exam, they have the minimum education standard, and they are qualified. Where does that put them in terms of advisers in other parts of the world – in terms of their minimum standards?

Phil

New advisers will have a degree, existing advisers will have something that’s consistent with a graduate diploma. But I do want to make an important point about life insurance advisers and the standards that have been set for them, and whether the course they need to complete is reasonable given they are a specialist, and the point we would raise here is that we want the FASEA regime to change in two ways.

We want there to be better recognition for previous study and experience, or CPD which represents that. And we have put forward a model where advisers with more than 15 years’ experience should get three subjects credit, between 10 and 15 years they should get two subjects credit, and between five and 10 years they should get one subject credit.

We think that will go a long way to helping some of the more experienced advisers to get across the line in having a sense that they are close enough to have a crack at the exam.

The other thing we want to do is ensure there is greater flexibility in the study that’s undertaken so that life insurance advisers can focus on studying content that is relevant to what they are doing and that is valuable to their business and their clients.

That might be studying underwriting or claims management or better understand the way the product works, more than asset allocation or derivatives and things like that.

I think the outcome of this is once everyone’s gone through this, we will be world-leading in terms of the education standards that we have.

We have a challenging few years in the meantime, but ultimately we will end up with a very professional financial advice sector.

Peter

Phil Anderson, thank you for your time.

Phil Anderson is the Acting CEO and General Manager – Policy & Professionalism at the Association of Financial Advisers. [ https://www.afa.asn.au/] Phil is an experienced financial services executive with skills in financial advice, regulatory change, risk management, compliance, project management, operations and finance.

 

Your quiz questions start below and you can scroll up if you need to refer back to the article.

There are five questions and you’ll need to get at least four correct to earn your CPD points.

If you get less than four correct, you can re-take this quiz. But only two attempts are allowed!

Scroll to Top