One of the most challenging aspects of preparing for this exam is to understand the volume of current law underpinning the provision of advice.
However, a good working knowledge of the current rules is necessary for two reasons. Firstly, it is hard to understand the additional impacts of the new Code of Ethics with knowing the current rules. Secondly, it is difficult to apply the advice rules to practical scenario-based situations in the exam if you don’t know them.
So instead of trying to rote learn several hundred pages of legislation, try asking why the law is there in the first place and what are the consequences for all parties of non-compliance.
I find that understanding the reason why is much more helpful than merely remembering lists and words.
For instance, every adviser should know the legal requirements of a Statement of Advice. That’s a list you can find in the legislation or related Regulatory Guide (RG). But that’s not enough. Being able to apply this knowledge in various situations is the point of the adviser exam.
So try turning it around to look at the flipside and ask, “What makes a SoA defective, how could a defect disadvantage the client, and what are consequences for the adviser?”
Similarly, the elements of the Best Interests Duty are listed in the legislation and by now, the listed elements should be second nature. Again look at the flipside, “Why do advisers not always act in the best interests of clients, and how could that adversely affect clients?”
Of course, there are many influencing factors including self-interest, money, greed, licensee pressure, time pressure, poor advice models, poor product knowledge, lack of communication, lack of records, insistent clients who think they know best, and so on.
Clients are adversely affected because they don’t receive the advice they deserve. As a result, the advice fails to solve the problem at hand, or achieve the goal set. The more this happens, the less trust is placed in the profession as a whole.
Conflicts of interest play a big role in the provision of sub-standard advice. Whilst a lot of conflicts revolve around adviser remuneration paid from a non-client source, other common examples relate to inherent product conflicts (many of which are related to adviser or licensee remuneration) as well as client conflicts such as advising both parties to a broken business partnership or domestic divorce.
These are the issues the Code of Conduct seeks to redress. To understand them in a real world context will enable you to identify ethical issues in the scenario-based questions on the adviser exam.
So although exam preparation at first glance might appear to be an insurmountable mountain of unrelated legislation, they are in fact related and all come down to one sharp point. That is doing the right thing by the client.