Minister defends controversial ethics test for stockbrokers

Financial Services Minister Jane Hume has defended the mandatory ethics test being taken by stockbrokers, after calls from the industry to overhaul the exam that has resulted in mass failure rates at top firms.

Stockbrokers are among the financial services professionals who have to sit an exam that tests knowledge of the laws and codes related to the provision of financial advice.

The test is part of a regulatory package designed to “professionalise” the financial services industry after the banking royal commission exposed systemic misconduct caused by the incentivisation of poor advice.

Minister for Financial Services Jane Hume has defended the FASEA exam. Credit:Alex Ellinghausen

Those who fail to pass the exam by the end of the year will have to leave the industry. Senior executives at top broking firms including Morgans and Ord Minnett have said ambiguous questions and poor feedback was causing high failure rates.

The exam questions deal with insurance, superannuation, welfare and tax. Morgans executive chair Brian Sheahan is now calling for a test that is “fit for purpose” with questions tailored to stockbrokers.

“It’s proven to be set by people focused very academically on areas that are not related to stockbroking,” Mr Sheahan said.

However, Senator Hume said there had been an average pass rate of 84 per cent across the board, and some firms would struggle more than others.

“There is plenty of opportunity to practise it. There’s plenty of opportunity to do training around it. And the best firms are doing that,” she said. “I can’t understand firms that have put their head in the sand. It’s a denial of the reality of the industry they work in.”

She said the test was not intended to broaden the industry’s skill set, rather examine the general competency of the workforce. “The focus is competence and knowledge, it’s not trying to expand their repertoire.”

Senator Hume said she had engaged with senior stakeholders within the stockbroking community to address concerns about the test. However, she did not have the power to compel the soon-to-be-defunct body responsible for the test, the Financial Adviser Standards and Ethics Authority, to make changes to the exam because it was an independent body.

Independent consultant Joel Ronchi has been running training programs for stockbrokers over the past few months after hearing that fail rates of between 50 and 60 per cent were commonplace among top firms.

“The exam is very broad where brokers’ focus is very narrow traditionally. They’re being asked to consider a whole range of things they don’t usually focus on,” he said.

One senior stockbroker at a top firm with over 40 years’ experience, who spoke on the condition of anonymity because he was not authorised to speak to the media, was among the cohort who failed the November exam.

“This is a really serious thing. It’s going to shake up the industry, there’s going to be a lot of clients who are not going to get serviced next year,” he said. “I know three firms that went through, one had a 100 per cent fail rate. These are not small, two-band operations. They’re multi-tiered stockbroking firms.”

Senator Hume said it did not seem plausible that hoards of stockbrokers would leave the industry because of the exam, but conceded some may leave on their own terms.

“Naturally some will choose to retire, there will always be some churn in the industry and new ones will come in. That’s to be expected.

“Those firms that have stepped up have been very successful and have taken it very seriously. They do that because they know there is competitive advantage in doing so.

“They will be able to have the equivalent of the heart tick on their brokers that says these are highly professional, highly educated, highly capable individuals that are looking after your best interests.”

Another stockbroker at a top tier firm, with 25 years’ experience, said he emailed Senator Hume to voice his concerns but had received little response.

The email, obtained by this masthead, said the FASEA exam would “hollow out an industry” and “fail to protect” retail investors.

Senator Hume ruled out providing any further extensions to sit the test after the deadline had already been pushed back once to accommodate for COVID-19.

“You can do it online, in person. It’s a very flexible approach to doing it,” she said. “We shouldn’t need to extend it further.”

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