As we herald a new age of higher education and ethical standards, two questions keep arising from financial advisers: what will the specific degree-equivalent requirements be and what will be in the competency exam?
Unfortunately, we don’t have answers to either of those questions at Professional Planner. The Financial Adviser Standards and Ethics Authority (FASEA) is working out the detail, a process that will take time and rigour.
But what we do know is that the start date is approaching. From January 2021, all financial planners will have to pass an exam; by January 2024, they will have to meet the new education requirements.
It’s natural, therefore, that a third question would come up from practising financial advisers: how do I prepare, in the meantime, to sit an exam if I haven’t undertaken formal education for years or even decades?
According to Brian Knight, chief executive of Kaplan Professional, the hurdle of sitting for an exam can be a psychological one.
“People only have a certain period of time and many haven’t studied for years,” he says. “There’s a fear factor there.”
“Whether it’s technical content or soft skills or anti-money laundering, if you haven’t studied at that level consistently and you go to study for an exam, it will be a challenge,” he says.
It’s a hypothesis backed up by several studies, which have drawn a link between exam anxiety and poor academic performance.
It’s evident at an anecdotal level, too. Knight was recently contacted by an adviser in the later stages of his career who was overwhelmed by fear about exams, partly because it was something he had not confronted for decades. It’s not an uncommon scenario, Knight says.
In his opinion, the way to combat that fear is to start practising taking exams months or even years before the formal requirements begin. That can mean a number of things – studying competency areas, taking formal or informal tests, increasing education or continuing professional development (CPD) training to give yourself the best chance.
Although advisers have three-and-a-half years to complete the exam, his view is that the earlier advisers start preparing, the more likely they are to be able to address problems with either competence or nerves.
Identifying advisers’ strengths and weaknesses
A couple of years ago, Kaplan approached the University of NSW Global to volunteer to help build an exam for the industry, which has since been adopted by licensees and individual advisers to test competencies in a range of areas including life insurance, superannuation, taxation, compliance and ethics. Sometimes it’s used for recruitment of new advisers, in other cases it ties in with CPD.
UNSW Global marks the exams and analyses the data using a psychometric process. Every time a batch of 250 tests is completed, the university revisits the tests based on performance trends. For instance, if there is evidence a question may be gender-biased, it is re-examined.
The Kudos test is multiple choice, with up to 56 questions and a learning module that appears for incorrect answers. Its competence level averages a Level 6 Advanced Diploma standard and advisers can complete it numerous times if they get answers incorrect.
“In order to make sure we’re writing items that are not culturally biased or gender-biased, there’s a lot of analysis of the quality of the items,” says Rob Forage, chief executive of the University of NSW Global.
He says these tests help participants identify their capabilities and shortfalls.
While the current iteration is multiple choice, to allow for automatic marking, he says it would be possible for a future iteration to include short answer or essay questions, which would require manual marking. The university uses those tests for accreditation purposes.
Since the formal announcement of the deadlines for the new professional standards, Knight says there has been an increase in inquiries about tools that can be used to increase preparation, even in the absence of confirmation about what the competence exam will entail.
“This exam is going to be challenging for this industry,” he says.
His colleague, Cathy Cavanagh, head of faculty, adds: “There’s a lot riding on it for an existing adviser because it’s your passport to practise.”
Other preparation areas
In the next couple of years, advisers will get a clearer picture of what the exam will look like and, in turn, how they may need to upskill to meet new professional standards.
The Financial Planning Association has proposed a single exam, which would cover topics including best-interests duty, the Tax Agent Services Act, anti-money laundering and counterterrorism procedures, common law, fiduciary duties and ethics.
“Irrespective of your area of expertise … everybody sits the same exam,” FPA chief executive Dante De Gori told advisers at its roadshow this year.
The FPA’s view is that a single test would be fairer and less costly than creating modular exams to cater for advisers’ many different areas of specialty.
In a draft white paper, the FPA provided further detail about what it sees as the role of the national exam for consultation, which included the assertion that universities are ideally placed to oversee the exam in a cost-effective, efficient and secure manner.
It noted the exam would be set at a bachelor degree (AQF7) level and proposed a multiple choice format to allow for easier marking.
Between now and when the full detail of the exam is revealed, Knight hopes advisers will start to take regular tests to prepare themselves psychologically. “What it’s trying to do at the moment is take away the fear,” he says.
