The current standards set by Australian Securities & Investments Commission mandate a comparatively low level certification program that can be completed in just days. This is clearly inconsistent with the notion of a profession and is certainly not congruent with the complex financial market, product, legal, business and behavioural knowledge and skills a modern planner requires.
Recent key national reviews acknowledge this and have all recommended increasing education standards to bachelor degree level. These include the Financial System Inquiry, The Parliamentary Joint Committee on Corporations and Financial Services Inquiry and the Australian Financial Services Licence Industry Working Group.
It is also worth noting that some segments of the industry and some professional associations already have degree-level education requirements for membership/employment and ongoing continuing professional development.
So where is ASIC on this and why have the current low standards persisted?
Well, they have tried to raise them. In June 2013 ASIC proposed to enhance its guidelines for training of financial advisers in various ways, but this did not progress.
ASIC’s preference is for the introduction of a national exam which it first raised in April 2011. The issue was raised again last year when ASIC suggested that a national exam “may replace any obligation to do a training course”.
The original model was for the test to take the form of an online three-hour exam both for new advisers and for existing advisers (to be repeated every three years).
More recently, ASIC Chairman Greg Medcraft restated this preference as a fundamental component of his vision for financial advisers where the industry sets the competence levels. This is a departure from ASIC’s earlier proposals, and would see ASIC test competencies by overseeing the exam.
As a result, ASIC is positioning itself to move away from the education/training side of the current regulatory regime, where it has largely failed to deliver an appropriate framework.
This leads to the question of whether requiring advisers to undertake an exam every three years would improve adviser competence and lead to better quality advice.
Simple in theory…
The advantages of a single national exam are drawn from the potential efficiency of it -- one instrument that can be completed online, give some indication of adviser competence, and provide a clear pass/fail measure that could be easily benchmarked. It is also a simple measure for consumers to utilise.
But the proposal does also raise a number of concerns.
Financial planning contains a diverse array of knowledge and skill areas (eg economics, investment, tax, legal, retirement, estate, insurance, risk, business, behavioural and client engagement ). It is hard to imagine how any reasonable measure of competence could be drawn from one online exam covering all of these.
At the same time, it is difficult to assess 'soft' skills in a test or exam, yet they are a key part of effective financial advice.
The licensing regime currently requires planners to be RG146 accredited only in the areas which they provide advice. An exam would therefore need multiple modules or versions to allow for various permutations.
The logistics of implementing the exam for somewhere between 18,000 and 30,000 individuals would be complex and suggests a sophisticated examination regime and significant effort in educational design to ensure the integrity of the instrument and its outcomes.
There are few examples of doing this in related professions (law, accounting, nursing, teaching, medicine) with most professions opting for a continuing professional development model.
The problem with the national exam is therefore simple -- who pays?
…Difficult to deliver
To do it well, given the scale and complexity of advice, would come at significant cost. With ASIC’s budget being cut and industry suggesting it is not willing to fund it, it’s unclear how it would be achieved, particularly given concerns about the educational efficacy of it as proposed. So it appears it is unlikely to be implemented as ASIC has suggested.
Rather, the proposal should be seen as part of a broader framework that builds on existing elements such as higher education degrees in financial planning, professional associations and the Professional Standards Councils framework.
Proposals to restrict who can call themselves a financial planner/adviser (including draft legislation) and a compensation scheme add further to the options.
What might seem like an easy fix (just make them all do a test), is likely to be of as little use in and of itself as RG146. However, as part of a broader professional framework a national exam may have a role to play. This could be for a more specialised purpose such as verifying currency of knowledge (given the continuous changes to taxation, superannuation and other relevant laws) than what ASIC envisages.
Other elements such as enforceable codes of conduct, complaints systems and compensations schemes would form the broader professional environment and assessment of competency. This would create a level and robust playing field for financial advice and should go some way to building consumer confidence in the sector.