THE ADVISER EXAM – the Fallout is Shameful and UN-Australian

As a private tutor helping hundreds of advisers prepare for the national adviser exam, I have seen first-hand the immense struggle of many older advisers and sadly, I have witnessed the physical, emotional and financial toll it has taken.

The government’s blunt instruments in administering the exam have been the now-defunct FASEA, and now the equally unhelpful ASIC.  Neither has provided any structured or meaningful preparation material nor any specific exam feedback that could be considered in any way helpful.  These are the two most common complaints reported back by advisers.

So is the exam hard to pass?  No, not for everyone!  In my experience (and I am generalising), recent graduates and younger advisers tend to pass without much trouble because they are more used to this style of exam. Financial planners find it easier than stockbrokers because the exam has been largely pitched at multi-disciplinary financial planners, thus making it very unfair for stockbrokers and other specialists.

However, the group that struggles the most includes older advisers who have never been to university or for whom university is a long way back in their past, have never faced an AQF level 7 exam like this before.

Many advisers have told me they know the advice rules but can’t fathom the way the questions are framed.  Advisers report questions which, in some cases, are so vague and ambiguous that it’s anyone’s guess what the answer is.

For example, a regular favourite is a multiple-choice question with four answer options about how a person might best spend a $50 voucher.  Apparently, this question has a definitive answer, which means that in an Australian adult population of 19 million or so, all would agree to spend the voucher the same way.  Surprise, surprise, they don’t; at least not in the real world where professional financial advisers live.  So why serve up such theoretic indulgences in a career-ending exam?

It would also help if all of the exam answers purporting to be correct, where actually correct. For example, in question #PQ104 in FG004 Practice Question Guide, where does the idea of 5 ‘business‘ days come from when providing disclosure documents in time critical situations?  The Corporations Act clearly says 5 days, and RG 7 titled “Calculating Time periods”, clearly says at 7.14 that “days which are not business days are included in the calculation of a time period”.  If the Corporations Act means ‘business days’, it is stated that way (e.g. 10 business days in the now superseded RG78 and still referred to in the current version at RG78.99).  This example was the subject of complaint to FASEA when it appeared in a 2020 exam and yet, it still sits in the re-branded FG004 Practice Question Guide today.

Since April 2020 (due to Covid-19), advisers have been subjected to a remote exam sitting system where advisers have reported a range of failures including, poorly trained and / or disrespectful supervisors, extended waiting periods up to several hours before the exam starts, and software that interrupts their exam or boots them out of the exam part-way through.

One adviser even reported kitchen noise and sounds of washing up through his computer audio whilst trying to focus on the exam.  Several advisers reported a particularly over-bearing supervisor who insisted that they look at the screen at all times, and not lower their eyes to the keyboard, which of course they needed to see to type.  Another adviser reported that a supervisor required her to roll up her sleeves to show that she had nothing written on her arms.

Unbelievably, advisers sitting the first of these exams in April 2020 were not permitted to go to the toilet for the duration of the 3.5 hour exam plus whatever time they were delayed before the start of the exam.  It’s hard to believe the poor treatment advisers have been subjected to.

The content of the adviser exam has been underpinned by a wide-ranging and almost infinite curriculum, administered to the entire adviser population, regardless of what their advice authorisations are.  Australia’s adviser population is made up of a number of diverse disciplines, including specialist advisers such as stockbrokers, risk insurance advisers and aged care advisers.  The financial advice industry, like many other professions, is made of generalists and specialists.

If advisers are going to be tested on their technical ability, such technical testing should be administered by area of discipline (rather than one-size-fits-all) according to the financial products each adviser is authorised to provide advice on.

Therefore, if every adviser is to sit an exam common to all disciplines, then the focus of that exam needs to be narrowed onto the key issues of Chapter 7 (Corporations Act), Code of Ethics, AML / CTF and Privacy (i.e. the law only).  TPB issues should be excluded as compulsory membership and associated compliance is mercifully on its way out.

As well as all exam questions tilted towards technical areas being excluded, so should all behavioral finance questions and all the various bits of academic research, psychology and other academic indulgences that have found their way onto the exam curriculum. If it is an exam for everyone, and is to be truly discipline-neutral, then there is also no need for the 1,400 page Master Financial Planning Guide to referenced in the curriculum.

The amount of examinable ‘extension reading’ over the past 3 years has been excessive to say the least. Perhaps someone has realised that this is not a psychology exam because I note that the volume has decreased in 2022.  Interestingly, Simon Longstaff’s Everyday Ethics has now disappeared from the suggested reading list and hasn’t even made it onto the 2022 extension reading list.  If it was important enough to be suggested reading for 2.5 years while its author was a FASEA board member, why isn’t it there now?  Would it be fair to conclude that it was just a bit of conflicted product-flogging and was never important in the exam context?

A career-ending exam is not the place for individuals to push academic agendas.  Financial advisers operate in the real world.  They don’t need to buried in academia just to prove they are competent to provide personal advice to retail clients.  If academic research is good enough to actually make into the legislated advice rules, then that should be the time to take it on board through the existing CPD system.

No adviser is going to be banned for 3 years because they don’t know the difference between a cognitive and an emotional bias. They will be banned however, for not acting in the best interests of a client when providing financial product advice.  So why not stick to the law and leave the rest of it to Universities to teach?

Now to the absurd length of the exam.  Since when does it require a grueling 3.5 hour exam to test a person’s knowledge and reasoning ability? In two degrees at University, I have never sat a 3.5 hour exam; and in five years of lecturing, exam setting and marking at Griffith University, I didn’t set an exam of that length for either under-grads or post-grads.

Two hours is more than enough time to determine competency.  Any more than that creates a physical endurance challenge which is both unfair and unnecessary.  You’d think!  Advisers reported that in the May 2022 exam, the number of questions was jacked up from a previous 76-78 to a record 81 questions with no extra time allowed.  As a result, many did not finish and many more were robbed of review time to check their answers.  That’s not the only reason that a mere 43% passed that exam but it didn’t help.

So what has been the real damage and fallout from this arbitrary exam?

Those who didn’t pass by 31 December 2021 and didn’t qualify for an exam extension were removed from ASIC’s adviser register and as a result, forced out of the financial advice industry.  Those with a 2022 extension who don’t pass by the (extended) deadline of 1st October 2022 (and don’t remove themselves from the adviser register) will suffer the same fate.

Those who are employed advisers can no longer work in that capacity, while self-employed (sole trader) advisers are forced to walk away from advice businesses that they have built for decades.

Those who run larger advice companies are trying to retain their businesses in an owner /director capacity but they will become forever dependent on, and at the mercy of, employed advisers who have passed the exam.

However, the exodus didn’t commence at the end of 2021.  It began a couple of years prior to that.  Thousands of advisers have already left the industry after a couple of unsuccessful attempts at the exam.  They tried to make the best of a bad situation and restructure their futures rather that wait for the ignominy of being booted out for ‘arbitrary’ incompetence.

The effect of walking away from a retail financial client business means either selling it to another adviser at less than its worth in an over-supplied market, or abandoning clients altogether.

I should point out here that the abandoned clients don’t get a say in the arbitrary banishment of their valued and trusted advisers.  Even though this whole process is supposed to be for the betterment of the advice-seeking population, it has the reverse effect in stripping advice-seeking Australians of their rights.

Without their consultation or consent, abandoned clients are redistributed by the licensee to other advisers in the advice group.  The law leaves licensees with no other choice, because abandoned clients with financial products can no longer exist as orphans.

To be clear, the vast majority of advisers being forced out of our industry are experienced advisers who have followed the education and CPD rules for years, and, in some cases, decades and have done absolutely nothing wrong.

So in my view, the premise of ‘better to be safe than sorry by throwing out the baby with the bathwater’ is unethical and leaves hundreds of thousands of happy clients suddenly unadvised.  It is dangerous and needs a serious rethink.

For expelled advisers, the only way back into the industry is to upgrade their education to a bachelor degree level, then complete a 1-year professional-year program.  Meanwhile, they have to find a way to earn money by doing something else through this whole period.  By the time they re-enter the industry 3-4 years later, their referral network and loyal clients have long gone and they must start again.

Compare this to the treatment of an adviser who actually does something wrong.  If it is a civil penalty matter rather than a criminal offence, ASIC is likely to impose a 3-year ban from the industry, after which they can return.

How is that fair?

I’m not a lawyer but I recall from my University studies a common law doctrine relating to restraint of trade which renders the imposition of any restriction on a person’s freedom to trade or seek employment unenforceable.

Of course reasonableness and public interest create the exceptions.

So, how is it reasonable and in the public’s best interest to arbitrarily annihilate almost half of Australia’s adviser population just because it made good political optics?

As I recall, restraint of trade applies to employment contracts.  Where does a democratic government find the legal or ethical basis to effectively force the fire sale or confiscation of an older adviser’s business (being an adviser who has done no wrong); and in doing so, force the forfeiture of their retirement asset?

There is and will always remain a need to get rid of the bad apples in our industry.  However, that is ASIC’s job with adequate funding.  It should not be the purpose or even the unintended outcome of an arbitrary exam.

Thousands have already left the industry and the collateral damage has included decline in mental and physical health, relationship breakdown, broken families, mortgage defaults, property foreclosures and financial hardship.  Many have self-harmed and already taken their own lives.

Even if the Labor government introduces the 10-year experience grandfathering pathway to avoid the necessity of a late life degree; and even if the date to pass the adviser exam is extended, it is already too late to recall advisers who have left. But it is not too late to save the many advisers who will be forced out on 1 October 2022.

I have not aired my views until now because I didn’t want to become distracted away from the one job I do very well.  That is, to help hundreds of otherwise unsupported advisers prepare for and pass the adviser exam.

I am not a particularly political person but I went to pre-poll a week early to vote Labor.  My vote was in part my protest to help expel an arrogant and intransigent government who bleated ‘jobs jobs jobs’, while knowingly and carelessly driving thousands of experienced (and innocent) advisers out of their jobs and businesses.

As a result, the Australian population they purported to represent has been left with a critical shortage of experienced and professional financial advisers, at a time of pandemic and financial upheaval, where the vast majority of Australians need all the financial help they can get.

I want to see change and I will continue to be part of the change I want to see in the industry I love.

Gary Weigh