The industry-wide exam for all financial planners should focus on the “higher order issues” of ethics and legal responsibilities, and leave technical competence to be assessed by degree-requirement education standards, a forum of leading financial planning academics has heard.
Attendees at the 14th annual Financial Planning Academics Forum (FPAF) held at the University of Wollongong in June, were told that the planned exam, the degree requirements for new entrants, and the degree-equivalent requirements for existing financial planners are closely interrelated, and the development of one will have an impact on the others.
The forum heard that a robust exam could last for as long as three hours, including reading time, and consist of as many as 50 questions covering five knowledge domains, with 10 questions in each domain. It should test an adviser’s knowledge using case studies, with no materials provided before sitting the exam.
The Financial Adviser Standards and Ethics Authority (FASEA), which is responsible for setting the exam as well as determining degree requirements for new and existing planners, could have to create as many as 500 questions, which could be selected in random groups of 50, and assigned expiry dates to preserve the academic integrity of the test.
“We assume they’re not going to be your simple knowledge-recall, multiple choice questions; rather, [you’ll get] a half-page scenario or case study, and you’ll answer questions pursuant to that, so a more robust form of MCQ [multiple-choice questions],” the forum heard.
“We came to the conclusion that it should be aligned with other professional exams in terms of something like a 65 per cent or 70 per cent pass mark, not 50 per cent; and that it should allow resits but with delay, so you can’t do it on day one, day two, day three and keep going until you get through it.”
In a session conducted under the Chatham House Rule focusing on key elements of new professional and ethical standards – degree requirements for new entrants, degree or degree-equivalent requirements for existing planners, the professional year, continuing professional development and the exam – the forum heard that “really, we cannot look at any of these things in isolation”.
“If the degree requirement is appropriate and suitable in terms of coverage of what we believe the body of knowledge should be, then that would alleviate the pressure on the exam to cover all of the technical knowledge areas,” the forum heard.
This means that which degrees are deemed “relevant” and “equivalent” will be critical to the final form and intent of the exam – not because those terms will directly inform the exam, but because they will directly inform the degree requirements, with flow-on effects for the exam.
“If the degree requirement, particularly the concept of ‘relevance’, is more broad, then perhaps the exam will have to be more comprehensive because the degree requirement is not doing the heavy lifting, so to speak,” the forum heard. “That [realisation] led to a bit of an epiphany that these things are all co-dependent. If we get one ‘wrong’, it will have a cascading effect on the other requirements.”
Sorting the logistics
The forum heard that in addition to the content of the exam, there are a range of practical, logistical issues that need to be dealt with. If a candidate fails one of the knowledge domains but still scrapes by with a pass, for example, they could be required to come back and demonstrate they’ve improved their knowledge in that failed domain.
“Therefore, the whole thing should be modularised,” the forum heard.
Administering the exam is “something that would have to be very carefully monitored and construed”.
“The fallout [would be immense], should the questions appear on some website for sale somewhere, for example, or if another one of those things academics know happen comes up – assignments for sale and all the rest of it. [It means looking at] identity checks, biometrics and so forth. There’s a lot of risk behind this.”
Ultimately, FASEA should “start and end with looking at what other professions do”, the forum was told.
“There’s probably a fair bit we can learn from the structure and the mechanics and the integrity issues of that.”
The forum also heard that the aim of a degree qualification for new entrants should be “to create a generalist”, with a professional year designed to give those new entrants some of the practical, hands-on experience they will need, and the exam to test the legal and ethical dimensions of their roles.
It heard that the exam should be the same for existing financial planners as for new entrants, provided the transitional arrangement for existing planners to a degree or degree equivalent is robust.
“The exam should pretty much be the same because whatever the bridging pathways were, they would fill that void of technical knowledge relevant to mapping [to degree requirements] and, therefore, the exam shouldn’t have to do the heavy lifting, it should be picked up by that other part of the framework,” the forum heard. “The critical parts of the framework then become these notions of ‘equivalent’ and ‘relevant’. If they’re not robust, if they’re contestable, then the whole exam framework we were looking at could become a problem.”
Attendees at the forum, therefore, spent considerable time contemplating what constitutes a “relevant” degree, as well as what degrees are clearly not relevant.
“Quite clearly a business or commerce or finance or management or actuarial degree is a relevant degree,” attendees heard. “Then we have a middle group of ‘it depends’: engineering, arts, communication, humanities, health, law, medicine, nursing, property, psychology, social sciences and sports management.
“And then we have some non-relevant ones: nutrition, politics, science, sports, writing and IT – unless it was a dual degree.”
The forum heard that even relevant degrees should be required to incorporate some specialist financial planning content. It suggested that a relevant degree must have at least “a technical minor, or four subjects basically similar to RG146, so they have the core competencies there in terms of a financial planning minor”.
Degrees in the “it depends” range would need the addition of a financial planning major – eight subjects related to financial planning.
The forum heard that FASEA could expedite things and bring certainty and comfort to existing students by granting immediate approval to any financial planning degree currently on offer that fits the national curriculum developed by the Financial Planning Education Council (FPEC).
And for “anyone who has one of those degrees from an Association to Advance Collegiate Schools of Business school that has the appropriate attributes in terms of assurance of learning, volume of learning and assessment process, we think there would be a quick win in terms of getting those approved”.
“Over time, we need more universities involved in the process, but there can be a staged application process,” the forum was told.
Attracting new planners
There are nowhere near enough students undertaking degrees to meet demand from the industry for new planners. Speakers at the forum conceded there would be a significant shortfall, but there are ways to tackle it.
“Converting accountants is an obvious one,” the forum heard. “Offering of minors, a four-unit minor, would be quite valuable. Have them at the end of first year have a ‘pick your minor’ as well as a ‘pick your major’ kind of day.
“Industry engagement is going to be huge. Scholarships and internship jobs and really talking about the outcomes. Going overseas and attracting foreigners.”
The FPAF considered the idea of using a challenge exam for existing planners to provide accreditation for previous academic achievements or existing knowledge to count towards meeting the “degree-equivalent” requirement.
A ‘diagnostic test’
Forum participants also discussed a “portfolio assessment” of existing competencies.
“If we could have some sort of diagnostic test to start with, then, if that is met by an existing adviser at January 1, 2019, and if they’ve got a number of years of experience but they don’t quite meet the degree requirement, could they submit some sort of portfolio that demonstrates or assures the learning that a graduate of a national curriculum would need to meet?” it heard.
“For example, could they provide examples such as an SoA or a number of SoAs? Could they have recordings of several interviews with clients and other samples they might be able to submit to show they meet the equivalent of a degree?
“But would it mean that any existing adviser would have to have a certain number of years of work experience, and at what level? It would have to be a client-facing role; for example, you couldn’t just say generally 10 years because they might not have been client-facing for that long.”
The Financial Planning Association has proposed a “100-point checklist” for assessing existing advisers’ qualifications and how they contribute to a degree-equivalent qualification. The FPAF discussed adapting that approach so that “rather than just having points allocated to different levels [of prior learning], we could have a system where there were different categories… that had to be ticked off”.
“So a formal qualification would be one aspect, years of experience might be another. There might be financial advisers who, say, speak to academics at conferences or they go in and take some classes at university – should they get points for that as well?” the forum heard. “And should we say existing financial advisers must meet certain components in different categories to get the equivalent of AQF7, based on the course-learning outcomes?”
Professional Year
Individuals entering the financial planning industry on or after January 1, 2019, will be required to complete a so-called professional year (PY). The aim of the PY is to help newcomers round out the skills and expertise they need to deal effectively with clients, but the Financial Planning Academics Forum (FPAF) heard that the PY need not be a single, uninterrupted 12-month period.
“You could potentially do a part-time professional year whilst you’re doing your degree as long as you’re filling in the right criteria for the structure or components of a professional year,” it heard.
The FPAF heard that a range of existing and new education providers could help PY supervisors take on interns or students by developing structured programs that match FASEA’s PY requirements.
The requirements are expected to be largely consistent with other professions’ PYs, and include “going out and having an internship with a potential employer or supervisor; they would need to complete a reflection journal; there would be some observation from their course providers; and also a report that would be completed by the employer for that particular part of the course program”.
“We thought FASEA would probably centrally administer this through some sort of digital logbook or online logbook, to be completed by the provisional person during the financial year, and their supervisor,” the forum was told.
“The supervisors are as defined by the law as it passed a few months ago, but we also thought a supervisor should have a minimum experience requirement before they could supervise someone. So we thought five years was probably a reasonable benchmark for someone to be supervising someone.”
The forum discussed the potential for the professional year to mirror the established six-step financial planning process, and to cover both technical and non-technical issues.
“There should be a minimum number of hours required on each of those components, so the whole spectrum of technical and non-technical skills were completed in a practical sense in that PY,” it heard.
“And at the end of the PY the supervisor could have some kind of ability or way of grading the student or the provisional FP to three levels of competency: a foundation level; an intermediate level; or an advanced level of practical competency.
“That would allow some flexibility because when you go into a financial panning practice often they specialise in a particular area. You would expect your professional year, at a foundation level, to cover all of those tech and non-tech skills, but in some areas you would expect some sort of specialisation where you might be intermediate or advanced at the end of the PY.”
CBD
There is currently no industry-wide requirement for financial planners to complete continuing professional development (CPD), with standards set haphazardly on an association-by-association basis.
But all that changes on January 1, 2019, when all financial planners will be required to meet uniform minimum CPD standards, set by the Financial Adviser Standards and Ethics Authority (FASEA).
The Financial Planning Academics Forum (FPAF) heard that effective CPD programs should take into account each financial planner’s existing knowledge and expertise, and focus on the areas they wish to develop.
A CPD program would start with an assessment of existing knowledge and a clear idea of what knowledge or expertise is desirable for a given role. Specific roles, and therefore the desired expertise, will vary from practitioner to practitioner.
“You start to develop a program of learning that fills in the gaps at the practitioner level,” the forum heard.
Development would need to be assessed but “rather than make it an annual [requirement], we thought it needs to be looked at more regularly – quarterly”, the forum was told.
“If there are any issues, it’s no good looking at it at the end of the year, it needs to be nipped in the bud more quickly.
“Adults will learn something if they can clearly see that there’s a goal – What’s in it for me? I will learn something if I can clearly see it’s going to improve my confidence and capability to do my job. So the hours won’t matter and the subjects won’t matter if you feel like you’re developing your personal professionalism.”
The forum considered whether minimum hour requirements should be mandated, but “we kept coming back to the fact that hours shouldn’t matter if you’re on a pathway that’s more customised and more targeting”.
The forum was told that financial planning practice managers would also have to be adequately trained and skilled in how to put together robust CPD programs.
