On December 14, 2018, the Financial Adviser Standards and Ethics Authority (FASEA) released a draft legislative instrument and associated draft explanatory statement on the compulsory adviser examination. FASEA is accepting submissions on the draft instrument until January 11, 2019.
The draft legislative instrument provides clear indications as to who can sit the exam, the number of questions in the exam, the duration of the exam and the terms of registration for sitting the exam. While the majority of the text in the draft legislative instrument is dedicated to the content of the exam, it still leaves a lot of leeway for interpretation.
Australian Council for Educational Research
In the press release accompanying the draft legislative instrument, it was announced that the Australian Council for Educational Research (ACER) will establish and administer the exam. The ACER is an independent, not-for-profit organisation with an international presence. They will conduct the exam in all capital cities and a range of regional centres for the cost of $540 plus GST per sit.
Who can sit the exam
An individual will be permitted to sit the exam only if they meet all the following criteria:
- They are either:
- An existing adviser on ASIC’s Financial Adviser Register on January 1, 2019,
- A new adviser who has completed an approved bachelor’s degree or higher,
- Required to sit the exam by a code of ethics monitoring body,
- Were permitted to defer sitting the exam due to illness, bereavement, hardship, jury service or technical malfunction at an earlier date, or
- An overseas adviser who has completed a course that is equivalent to FASEA’s domestic requirements and is looking to become an Australian adviser;
- They are registered to sit the exam,
- They have not sat the exam in the preceding 3 months, and
- They have not been disqualified from the exam for not adhering to the exam conditions. Conditions include using unauthorised internet access in the exam, bringing unauthorised material into the exam, disobeying an invigilator and communicating with other exam attendees during an exam).
The exam will be 3 hours long plus half an hour of reading time. It will consist of at least 70 questions, of which at least 64 will be multiple choice and at least 6 will be short answer or report-style. The exam will be marked to a “credit level” and those who sit the exam will only be informed that they have passed or failed.
The draft legislative instrument does not elaborate on what constitutes a “credit level”. If it is a reference to the pass, credit, distinction, high distinction grading model, this is not a centralised concept amongst Australian universities. Some universities start their credit band at 60% and others at 65%.
The exam will generally be undertaken in one of a number of centralised locations, using computers provided by the exam administrator. In circumstances where advisers cannot travel or are in remote locations, alternative arrangements may be permitted from January 1, 2020.
The exam will be set a level equivalent to a bachelor’s degree. The draft legislative instrument identified 3 areas to be assessed:
- The legal and regulatory obligations of financial advice. This includes
- Chapter 7 of the corporations act (which deal with financial services),
- the anti-money laundering and counter-terrorism act,
- the privacy act, and
- tax and commercial law, the equivalent of that required by the Tax Practitioners Board to be covered in courses completed by tax (financial) advisers.
- Applied ethical and professional reasoning and communication. This includes:
- Knowing FASEA’s code of ethics and how to apply it,
- Explaining the importance of a code of ethics and its importance in ensuring advisers adhere to professional standards,
- Apply ethical frameworks to solve dilemma encountered by advisers,
- Explain the importance of, and demonstrate how, an adviser meets their requirement to act in the best interests of their clients, and
- Identify the importance of due diligence and the importance of maintaining client files and records.
- Financial advice construction. This covers the knowledge required to provide compliant financial product advice. The draft instrument outlines that this is wider than just choosing appropriate strategies and includes understanding community profiles at a retail client level, consumer behaviour and decision making and the need to avoid misconduct and inappropriate advice.
FASEA announced in November that the exam will be open book for statutory material – predominantly those covered in the first topic outlined above.
Financial advice construction
The issue that has generated most conversation is whether existing advisers would be required to answer questions on financial advice construction in areas in which they are not authorised or qualified to provide advice. Unfortunately, FASEA’s draft instrument and explanatory statement provides no indication that exam questions will be tailored according to advice area authorisation or specialisation.
The draft legislative instrument covers a range of conditions under which the exam must be sat. These are, by and large, standard conditions, including that the exam be invigilated, and the invigilators’ instructions be followed by those sitting the exam, how an exam attendee may have their short answer marks reviewed and what is permissible communication during an exam.
Exam commencement and timetable
According to the explanatory statement, the first exams will be held in mid-2019. They will be scheduled quarterly with exams every 2 months for existing advisers throughout 2020.