Industry weighs in: Exam’s role in shaping adviser standards questioned

Over the past few months, certain groups have argued that the adviser exam holds little significance in an environment where existing advisers have already passed it or fulfilled additional education requirements, including meeting transitional criteria such as the experience pathway.

According to these groups, the requirement for new advisers to attain at least an AQF level 7 education makes the exam redundant.

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Despite these arguments, the corporate regulator announced on Wednesday that it would be implementing changes to the exam, as proposed by the government in December, securing its existence for the foreseeable future.

Addressing the exam conundrum, Ben Marshan, founder of Ben Marshan Consulting, explained to ifa that if advisers are required to have a university-level qualification, passing the capstone unit should theoretically suffice to demonstrate sufficient knowledge for providing advice.

However, this would demand confidence in the effectiveness of the university sector in terms of maintaining minimum quality education standards and a suitable financial advice curriculum.

Ironically, Mr Marshan noted that the exam or an assessment of applied knowledge might now hold more value than initially thought, given the current state of the FASEA framework.

“If we moved to a system where universities self-accredit, or the requirement for a specific financial planning degree or major is removed, as argued by some associations, a process to ensure sufficient knowledge and quality would be beneficial to the system. In that case, an assessment – and in this case, the exam – makes more sense,” Mr Marshan said.

“The irony is that there was probably less need for an exam when FASEA was approving degrees than there is now or would be if the specific financial advice degree requirement was removed,” he added.

Shifting focus to the make-up of the exam post the announced changes, Mr Marshan highlighted that learning styles of adult learners vary. He argued that while a multiple-choice exam offers advantages in terms of cost to create, administer, and mark, it is tailored to specific individuals and bears little resemblance to the practicalities of being a financial planner.

“From this perspective, it is again useful as a common tool to benchmark different university outcomes, a test of knowing information (although maybe not understanding given the ability to guess ~25 per cent of the correct answers randomly), and something that can be pointed to as a common threshold that the profession needs to pass through.

“But it isn’t the best type of test to assess whether you will be a professional financial planner, understand and can apply your ethical obligations, or are fit for purpose for a diverse range of learning styles.”

‘A move in the right direction’

Joel Ronchi, chief executive officer of Fourth Line and colloquially known as the “FASEA guy”, believes the exam changes are “a move in the right direction”.

Having assisted advisers, stockbrokers, and licensed accountants in their exam preparations through structured programs and personalised tutoring, Mr Ronchi highlighted two major concerns voiced by participants over the years: ambiguity and unfairness of short answer questions, and the lack of personalised feedback for individuals who don’t pass.

“The proposed changes help alleviate the first gripe, and possibly the second if ASIC decides to go there,” Mr Ronchi said.

“The proposed changes may also help financial advice practices and AFSLs as the exam will no longer have a potentially adverse impact on the professional year as the person can complete the exam at any time (based on scheduling) but must do so before being eligible to enter the third quarter of the PY.”

However, he told ifa that he is not certain if the exam is redundant.

“If we assume that all new entrants to the industry will be degree-qualified (which ultimately, they will) and must undertake the PY, then the next question is naturally, ‘What value is in the exam?’

“It could be argued that while academic qualifications provide a great theoretical foundation, the exam serves as a standardised practical assessment, evaluating a candidate’s ability (relative to their peers) to apply their knowledge in real-world scenarios. Therefore, for participants who undertake the exam, the value of the exam lies in its construction.

“If you flip the coin, you might also want to ask from the perspective of ordinary Australians who are clients of financial advisers, ‘What value is in the exam?’ Retaining the financial adviser exam may create a sense of confidence for clients if they know all advisers must pass an ASIC-enforced standardised exam.”

Similarly, with the proposed “qualified adviser” framework under the Quality of Advice Review implementations, Mr Ronchi said there may be two tiers of advisers. In such a scenario, he expressed the view that the mandatory national exam could serve as “a great tool to help ensure parity in assessing the ability of all advisers in a practical sense”.

Accounting bodies express anti-exam sentiment

Just this week, ifa reported that in their joint submission to government CA ANZ and CPA Australia argued that the adviser exam has largely become redundant.

Late last year, the government released draft legislation aimed at improving the delivery and accessibility of the adviser exam.

Back in November, prior to the government’s proposal to alter the exam, The Advisers Association (TAA) also called for an end to the exam, saying it has “served its purpose”.

TAA chief executive Neil Macdonald said at the time that the government should consider removing the obligation for advisers to sit the exam, adding that the exam is fast approaching its use-by date.

The exam was part of the financial adviser reforms outlined in the Corporations Amendment (Professional Standards of Financial Advisers) Act 2017, which received royal assent on 22 February 2017 and came into effect on 15 March 2017.