We all know that too many advisers are exiting the industry far too quickly… But you think it’s bad now? In four years’ time there will be another mass exodus of financial advisers that will make the current stream of exits look like a trickle in percentage terms.
Why? Because four years is all the time that passing the FASEA exam has bought advisers who do not currently hold a degree. Existing advisers with no degree must have an approved degree, or an equivalent qualification at AQF7 level, or another approved qualification, for example, a masters degree, no later than 1 January 2026.
There are huge issues with this approach.
The first is that many established advisers accepted the challenge to sit the FASEA exam, and have since passed, demonstrating that they knew the answer to ambiguous multiple-choice questions that rarely had much to do with the valued work they do for their clients. However, many of these advisers are older, but not old, and see no benefit in enrolling in university to do a degree that will require academic study for the sake of a few more years in the industry; years of pain and red tape.
The second is the assumption that four years is plenty of time. It is not. A FASEA-approved degree, for someone with no existing tertiary qualifications will take, conservatively, three years’ full-time to complete.
What adviser running a business, seeing clients, completing requisite continuing professional development (CPD), trying to have some family and social time, with no real experience of the demands of university-level study will be able to commit to that process, and pass?
I’ll go out on a limb and say next to none of the existing advisers, unless they have already commenced their studies.
Last month, FASEA released a statement congratulating advisers who have, “embraced Parliament’s Corporations Act amendments to raise the education standards of financial advisers”.
The announcement also reiterated a statement that was included in the explanatory memorandum attached to The Corporations Amendment (Professional Standards of Financial Advisers) Bill 2016 (the Bill) that said, “the length of time that the adviser has been in the industry is not itself a relevant consideration.”
We agree with the underlying intent of those comments. CLERP6 and financial services reforms rolled out in 2002 also suggested that length of time was not a good indicator.
However, those 2002 reforms also took the very strong view that competency was a much better indicator – that is, the combination of relevant knowledge, which can be assessed via a written test; skill, which is the practical application of that knowledge in an appropriate and relevant manner, and attitude.
It’s not unlike getting an Australian driver licence. You must pass the driver knowledge test and the hazard perception test, then demonstrate your skills via a practical driving test – unless you already have a driver’s licence from another country, in which case your prior experience means you may only need to pass the driver knowledge test.
The third, and I would argue the most important component of competency is attitude, which includes having the right morals. Just as you can have a skilled and knowledgeable driver who drives recklessly, you can have a skilled and knowledgeable adviser with the wrong attitude.
The solution to this is twofold, first introduce a “Best Interests Duty” like all other professions, which has already occurred, and second get rid of the few “bad apples”, if and when they occur.
But back to FASEA.
The question to ask is, “Why is the exam not enough?”, especially when considering prior learning and experience.
The FASEA website explains that the exam tests the practical application of advisers’ knowledge in the following competency areas:
If advisers have passed the FASEA exam, they have therefore by FASEA’s own definition been deemed “competent” in these areas. If they complete their annual 40 hours of CPD, they presumably remain competent. If they also have decades of experience as an adviser successfully servicing their client base, haven’t they also demonstrated that they have the right attitude? In fact, haven’t they even more thoroughly demonstrated actual competency – the successful marriage of skills, knowledge and attitude – than someone who has simply completed tertiary qualifications but has no experience? How then is the length of time they have spent doing just that not a relevant consideration?
I can think of no other profession whereby participants meet the initial and ongoing educational requirements to practise as a professional, but are then required to complete further tertiary education in order to continue to practise. It’s bizarre and arguably discriminatory.
An equally important question to ask is what would the clients of long-serving advisers prefer? A freshly minted graduate with a professional year under their belt, or the competent and experienced adviser they, and often their families, have been dealing with year-on-year?
While a line needs to be drawn in the sand somewhere, perhaps one option is to allow advisers who have passed the FASEA exam, met previous qualification standards and ongoing CPD requirements who are over say, age 55, to be exempt from the requirement to do further tertiary-level study. The risk is low and the benefits for the profession and consumers high.
We must not make it impossible for highly experienced advisers to remain in the industry, just because they can’t or don’t want to complete a degree. Australians need them more than ever. We need them until at least such time as financial advice is recognised as a viable profession, becomes more attractive to new entrants and, most importantly, until those new entrants have time to complete their qualifications, undertake the professional year and gain some experience.
If we don’t, we will see thousands more highly experienced advisers exit en masse on 31 December 2025, and that can only herald a grave new year.
Neil Macdonald, chief executive, The Advisers Association
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