For most advisers, the thought of the financial adviser exam is likely to be a distant memory. Some advisers may even look back with rose-coloured glasses and think — it wasn’t all that bad.
But spare a thought for those advisers who haven’t yet completed the exam. What does it mean for them and, more importantly, what do they and their licensees need to do to stay out of ASIC’s crosshairs?
Before discussing these issues, let’s first recap on the new Professional Standards.
The Professional Standards
As financial advisers are aware, 2019 saw the commencement of the new Professional Standards regime for advisers who provide personal advice to retail clients.
Advisers are now required to:
- have an approved qualification
- complete 40 hours of CPD each year
- comply with the Code of Ethics
- and, what’s presently drawing ASIC’s attention, pass the financial adviser exam.
New advisers are also required to complete a full-time supervised professional year before becoming a fully fledged financial adviser (a bit like being on your “P’s” when getting your driver licence).
While new advisers must meet the new requirements before providing personal advice to retail clients, existing advisers (financial advisers who were operating before the new regime) were given more time to meet the requirements.
Completing the financial adviser exam was the first “milestone deadline” of the new reforms for existing advisers. Despite Government extending the cut-off date for reasons associated with the COVID-19 pandemic, the final date existing advisers had to complete the exam was 1 January 2022, unless they can come within one of the limited exceptions.
Which advisers did not need to meet the 1 January 2022 exam deadline?
Advisers that had attempted the exam twice.
In 2021, the Government granted an extension for those advisers who had unsuccessfully attempted the exam twice before 1 January 2022. These advisers have until 1 October 2022 to pass the exam.
The Government was clear in its messaging that only those who had made a genuine attempt at the exam were eligible for the extension, meaning, if you hadn’t attempted the exam twice, no leniency was likely to be given.
Advisers on a career break
The Government also granted an extension to existing advisers that were not financial advisers as at 31 December 2021 because they were on a career break. To be eligible for this exemption, the adviser must not have been authorised to provide personal advice to retail clients on 31 December 2021.
In short, these advisers can continue to be treated as existing advisers and can again be authorised to provide personal advice to retail clients once they have passed the exam.
What happened on 1 January 2022 if you hadn’t passed the exam?
What caught some in the industry by surprise was the blunt way the law operated for existing advisers who hadn’t passed the exam or hadn’t attempted the exam at least twice before 1 January 2022.
In short, the law operated to automatically revoke, effective from 1 January 2022, the adviser’s authorisation to provide personal advice to retail clients. Even though the adviser may still have appeared on the Financial Advisers Register after this date, they were no longer authorised as a financial adviser.
Can these advisers still provide personal advice to retail clients?
In short — no.
Where an existing adviser has had their authorisation revoked because they didn’t pass the financial adviser exam before 1 January 2022, the road ahead is long.
They will essentially need to meet all the new Professional Standards before a licensee can re-authorise them again to provide personal advice to retail clients.
This means, not only passing the exam, but they must also meet the new degree qualification requirement as well as undertake the professional year before they can again become a financial adviser.
The only exception is financial advisers that had unsuccessfully attempted the exam on at least two occasions before 1 January 2022. These advisers can continue to provide personal advice to retail clients. However, if such an adviser fails to pass the exam before 1 October 2022, they must cease to provide personal advice to retail clients from 1 October 2022.
What if the adviser was also a Responsible Manager?
This is tricky.
If the adviser who didn’t pass the exam by 1 January 2022 is also a Responsible Manager (RM), not passing the exam could affect their role as an RM.
Remember, the RMs are the people nominated by a licensee to demonstrate its competence to provide the licensed financial services. These persons must meet certain qualification and skill requirements to be RMs.
ASIC outlines these requirements in RG 105 – AFS licensing: Organisational competence. At present, the requirement to complete the financial adviser exam is not part of the qualifications or skills ASIC requires of RMs nominated by advice licensees.
However, even though it’s not specifically specified in RG 105, it’s not hard to see ASIC questioning the competence of an advice licensee if none of its RMs have passed the financial adviser exam.
What do licensees need to do if an adviser didn’t pass the exam?
Because the law automatically revoked the authorisation of a financial adviser on 1 January 2022 if they hadn’t passed the exam or attempted it at least twice, this raises a number of issues advice licensees need to think about.
1. Update ASIC’s registers
If you haven’t already done so, you will need to update the Financial Adviser Register to reflect the fact that the financial adviser’s registration ceased on 1 January 2022.
If the financial adviser is also an Authorised Representative, ASIC’s Authorised Representatives Register will need to be updated to reflect the adviser’s correct authorisation.
The licensee will need to consider what services, other than personal advice to retail clients, the adviser will provide (e.g. general advice only or personal advice to wholesale clients).
Whatever role the adviser continues to have in the business, the licensee will need to ensure that the new authorisations reflect the adviser’s new duties and responsibilities.
Also, the licensee should ensure its monitoring and supervision procedures are checking that these advisers don’t provide personal advice to retail clients.
2. Assess whether the adviser provided personal advice on or after 1 January 2022
If personal advice was provided to retail clients after 1 January 2022, this is likely to be a breach of the financial services laws as the adviser would not have been authorised to provide these services.
Consider the breach reporting requirements and whether any client remediation is required.
3. Consider who will continue to service clients
For advice licensees, retail clients will still need to be provided personal advice.
If there are other advisers in the practice that have completed the exam, transfer the clients of the ceased adviser to a new adviser. Remember, if the client has an ongoing fee arrangement (OFA) in place, the client will be entitled to an annual review. Make sure this occurs in time so as not to risk the issue turning into a fee for no advice issue.
Also, any changes to an existing client’s financial adviser may impact on who the provider of the advice is and what advice document they will need to be given when the client next obtains personal advice (e.g. a Statement of Advice or a Record of Advice).
If you are in the difficult situation that no advisers in the practice have completed the exam, you need to act fast to avoid causing harm to clients.
Appointing a financial adviser is a priority. But don’t overlook the new ASIC Reference Checking and Information-sharing Protocol. In the interim, make sure you have a contingency plan to refer clients that need (or are entitled to) personal advice to another advice practice. If clients are already entitled to an annual review as part of their OFA, it may mean the advice practice will have to pay for the advice. Alternatively, the OFA may need to be terminated and ongoing fees refunded.
Not acting quickly to ensure retail clients are able to be serviced is likely to come under scrutiny by ASIC. If nothing else, the licensee may be seen as not acting efficiently, honestly and fairly.
Finally, you may be considering changing your business to a general advice model only or to only servicing wholesale clients. While this is technically possible, you should think carefully about changing your model as there are many things that can go wrong. Best to get advice about this option as it could make the situation worse.
4. Consider whether you need to appoint a new RM
If the adviser is also an RM, and no other RMs under the licence have passed the exam, it may be worth nominating someone that has passed the exam. This will help avoid questions about the licensee’s competence to operate an advice practice.
5. Assess whether you need to notify ASIC
If an adviser of a licensee has been affected by this issue, their licensee will need to consider if a reportable situation has occurred.
This might arise if ASIC’s registers weren’t updated in time or if the adviser gave personal advice when they weren’t authorised to do so.
Licensees will need to consider not only the financial services laws the adviser breached if they didn’t complete the exam before 1 January 2022, but if there are any financial services laws the licensee breached.
6. Can ASIC grant relief?
Finally, it’s not widely known that ASIC has the power to grant relief in this situation. This means ASIC can modify the law to allow an existing adviser to continue to provide personal advice if they didn’t pass the exam by 1 January 2022 and none of the limited exceptions apply.
But just because ASIC can give relief doesn’t mean it will. It’s likely only to be in exceptional circumstances that ASIC will grant relief. These reforms have been known for a long time, so it’s hard to see ASIC having much sympathy for advisers who haven’t passed the exam and don’t come within the limited exceptions.
Final word
There are significant consequences for financial advisers and their licensees for not complying with the Financial Adviser Exam requirement by 1 January 2022. If none of the limited exceptions apply, advisers and their licensees should act quickly to address the resulting issues and, most importantly, avoid causing harm to their clients.
Finally, if you’re holding out hope that the new Government will provide relief for those advisers that haven’t passed the exam, we suggest you don’t. While the Government indicated, in opposition, that it would look at the new qualification requirements for advisers with 10 years or more blemish-free experience, it made clear that the Financial Adviser Exam requirement was non-negotiable.
Josh Wigney and Jesse Vermiglio, Holley Nethercote
The exam has been covered ad nauseum for the past 3 years now. Its time to move on and deal with the over compliance and red tape.
Has anyone worked out that those with greater education and professional standing collectively have a better chance of seeing reduced red tape and self regulation?
But no, we are an industry, not a profession, of excuses and carve outs.
No exam is perfect and the fact that 9/10 passed their first attempt says something. Yet we are all for the lower common denominator and not the achievers.
Exams are also about critical learning and applying new found knowledge (its called study) to situations. Why is it that most of the vocal minority think they could be given a free pass?
How many made the effort to study or even better, take up the many exam study sessions that were available.
Yes I know some struggled with exam technique, but this was a major part of the study sessions.
Like I said, the exam was not perfect but it was very passable for those that put in the effort. You have had plenty of time and notice.
Time to move on and be professional.
(I am also over 60, no previous degree, 35 year experienced, and have got off my backside and done the necessary units to be qualified…. it was a great learning experienced helped by experience)
I know of a bunch of people that have put in countless hours, with various tutors and have struggled with the exam. Good on you for passing but you shouldn’t pigeon hole those who have failed into the ‘lazy’ category.
The whole thing is a farce and to think that “green” people with no experience are more qualified than those who haven’t passed this ridiculous exam is a joke for the industry. I am one of those who is new to the industry and I cannot believe that this is the way older advisers are being treated.
I think that in most other professions, if a small business was going to be eliminated (ceased the right to earn a living) because they failed an exam that was created 25 years after the business commenced, that would be a big deal but not this industry.
I have tried and failed the exam 5 times and will have to stop providing advice to people that have dealt with me for 25 years.
I have never done well in exams so what is wrong with a weekend away to complete a course, socially and pass a module, why an exam with very tricky questions (Ethics Exam mind you)
I have never insisted a client pass an exam to become a client or to remain a client. 40 hours CPD and pa what is that all for.
The exam questions are crazy, (q’s are almost trying to trick you, crazy considering it is an ethics exam, the situation i am in, along with hundreds of other advisors is crazy.
No complaints, CPD standards maintained, happy clients, very good at explaining to clients why and how of saving money and now i will be out.
My clients are just as confused as me about an exam and 66% pass what happened to 50% (FP is not rocket science) all really concerned about my situation for me and them, i guess.
They say that 90% of advisors have passed, who sit the test, but only 65% of people sat the test from the $ 29,000 advisors. The client relationship is built on trust and if you are not trustworthy then no positive exam result will change that.
Passing a legal exam is not my cup of tea, but as most honest advisors know the dodgy ones always blitz the test (Small % but still alive and well) because they know the rules back the front, the honest ones just do the right thing in the first place.
Hopefully there are some ‘ethics’ in the powers to be come good and give us some more time to transition to a job, great.
Replace financial planner with Police Sergeant, Accountant, Teacher, Bookkeeper, Nurse and if they had to sit a test or they are out then you would not hear the end of it
I completely understand and it’s an absolute disgrace. The exam is unethical in itself. This industry has become shameful and not a good place to work. No other profession is forced out over an exam – I do not care how long they have given advisers to complete it – that’s not the point. Let’s hope now that the new government comes to their senses and allows an extension for those who have attempted the exam multiple times this year.
Yes there must be a way to keep good people in the industry.
You don’t base a a jib applicant on exam results, some of them have qualifications as long as your arm and are obviously good at passing exams but can not even hold a conversation with you and have very poor personal skills.
The client sitting in front of you wants a relationship built on honesty, trust, competence and personal skills.
A test proves that you can remember stuff or are good at working your way around a computer.
Clients want a relationship with a person not a robot.
Hope we can see a way through to a sensible end.
The best teachers at school were not necessarily the ones with several degrees generally but the ones you could relate to, were funny, and had a genuine interest in you and your progress.
Can we please look at this like a human and let the client decide if you are worthy to give advice not a bureaucrat.
Ah gees mate. I’m really sorry to hear this. I had trouble with it & effectively employed a tutor at the knowledge shop. Is it too late? If not pl give Conrad a go, helped me enormously. Once again, sorry to hear this…
The exam is getting rid of the right people in my opinion. Anyone with 25 years of “experience” who cannot pass the FASEA exam should definitely not be advising anyone about financial matters.
its been really interesting to read the comments here of some – would be well advised to read Stephen Covey’s book – Seven Habits of highly effective people – Habit 5: Seek First to Understand, Then to Be Understood.
Yep. Round up these errant advisers and dispatch to the dust bin of history. Problem is that one dodgy exam should not destroy people and families.
90% of those who took the test passed….not sure how dodgy that makes it…maybe the ones that failed are the dodgy ones…just saying…
90% of whom? Certainly not off those who have gone.
How unethical of you to say – are you sure you’re an adviser and have passed the exam?!!!
Anyone who doesn’t pass their FASEA exam should be booted from the industry. They’ve had over 3 years to get it sorted. If they cannot or will not pass the exam then goodbye. If they haven’t made arrangements to transition their client registers then goodbye.
How does the FASEA exam help anyone?
It gets rid of people who shouldnt be advising on financial matters. Anyone who cannot pass FASEA after 3 years and unlimited attempts is by definition unqualified to advise clients
For the risk only advisers Why are they not mentioning move to general advice? All the Insurers support general advice. No SOA required, no cost to the client and the client can a get full retail offering. Most importantly you get to stay in the industry and keep your clients and continue doing what you do best which is protecting the client from their biggest asset their ability to earn an income.
How do you provide product advice without an SOA? Curious
Because no one has ever shown me how general advice is not personal advice without an SOA and without client protection. It’s as big a rort as unlicensed accountants opening SMSF’s.
Correction Josh/Jesse, the concept of an exam is not negotiable BUT the Minister stated that the one size that’s fits all is wrong and should be corrected…..
I hope its not an idle threat. There’s been plenty of time to do the exams and at some point ASIC has to make the call on those who are still waiting for the grandfathering clause. And as for licensees who haven’t acted on existing advisers? Rescind the licence because tragedy obviously don’t respect the law – or the industry.
whilst one can smile at this – “perceived ” threat to the new world order of complying sheeple – have ASIC for a minute considered that timeliness in the provision of exam results would be of benefit. it will be some six weeks post exam before the results are in – and then two weeks before the affected advisers will lose the right to go about their employment – in many cases forfeiting businesses. what a terrible – disgraceful mess.
two weeks to get their house in order should they fail is terrible. surely ASIC should give them at a min’ 4 weeks.
Except they’ve actually had years to get this sorted. No sympathy. Move on.
Don’t forget the 3 year’s leading up to this point. The first exam was in June 2019. If someone doesn’t have enough time at the moment it is their fault and not ASIC’s. In saying this it should take that long to mark an exam which is mostly multiple choice.