Johannesburg - New compulsory exams in the financial services industry may have a huge impact on the number of intermediaries and sales forces of large institutions.
The exams, which are supposed to test knowledge in the industry and were outlined in legislation a number of years ago, were finally introduced in November last year. The Level 1 (RE 1) exam, which is compulsory for anyone who provides financial advice and intermediary services, tests regulatory compliance and needs to be passed by December this year. Failure to do so will disqualify the person from the industry.
The Level 2 (RE2) exam focuses on specific financial products and has to be passed by December 2013.
While acknowledging the need to "professionalise" the industry and address the lack of regulatory knowledge, many financial advisers have complained to Fin24 about the exams.
In one office, only a fifth of those who took the exam made the grade. A mark of 65% or 66% (depending on the exam) has to be achieved to get a "pass".
"A surgeon that operates on me only had to get 50%," a financial planner grumbled.
Gregg Sneddon, a financial adviser of planning firm The Financial Coach, expects the exams to “decimate” the sales forces of large financial institutions – as well as the number of financial advisers in the country.
About 150 000 people will have to pass the exams, but Sneddon expects only a small number of those to succeed. Only about 2% of those who will take the exam are certified financial planners, the top professional accreditation requiring educational, examination, experience and ethics minimum standards.
“Our experience is that those who wrote the exam and achieved the minimum of 65% were by far the minority,” says Jaco Coetzee, head managers of Sanlam Financial Advisers. Those who took the exams were well-qualified – CFPs and managers with graduate degrees. He says the problem is particularly the misleading way the questions are put.
“If the exam papers are not drastically reviewed and the minimum marks to pass (65%) are not reconsidered, the current RE exams could potentially end the careers of 50% of intermediaries.”
A senior representative from a large insurer, who wanted to remain anonymous, also says the way the exam questions are put is very difficult. "Some of the (multiple choice) questions contain a very small tweak to the legislation, which may be difficult to pick up.”
Elna Rudman, a Pretoria-based insurance broker, says the exams are necessary, particularly for those who are still not aware of the implications of the Financial Advisory and Intermediary Services (FAIS) Act, which was implemented in 2004.
But she feels the deadlines on the exams are too tight. The RE1 exams were supposed to be launched early in 2010, but the first exams were only available in November.
Sneddon thinks the deadline will be extended. The Financial Services Board did not respond to a request for comment. Costs and other gripes
The cost – R900 an exam - is also daunting for many advisers who are already battling to survive. Advisers who have to take exams repeatedly and those who are accredited to sell a number of different products (and will have to take different RE2 exams) will have to fork out thousands – at a time when they are already struggling to survive in a challenging economic climate.
Sneddon has calculated "just on a point of interest" that the FSB will take in more than R2.4m, and the four different exam bodies more than R100m just for the RE1 exam.
Another big gripe is that the exam is only available in English.
"Especially the older guys on the platteland don’t know the English financial terms, which is a huge drawback," an adviser says. He complains that the wording of the multiple choice questions is difficult."The questions are worded in the negative – as if they want to catch you out."
Some of the advisers also complain that the exams are not based on the study material compiled by the Insurance Sector Education and Training Authority (Inseta). The accredited examination authorities - Moonstone Information Refinery, the Financial Planning Institute, Institute of Bankers (Leselo) and the South African Institute of Financial Markets – has each had to compile different exams.
"It is like writing a Unisa exam, while preparing with study material from the University of Pretoria," an adviser said.
Moonstone director Hjalmar Bekker says it will be difficult for advisers who don't study the source legislation, specifically the Board Notice 105 of 2008 which determines the criteria for financial services providers, to pass the exam. Examination bodies are not allowed to comment on the study material or training service providers to prevent a possible conflict of interest.
He acknowledges that there have been complaints from the industry about problems for those who don't have English as a mother tongue, but says that the legislation governing financial services is exclusively in English.
To translate the exams in all 11 languages will be expensive and will make the exams pricier for intermediaries.
Bekker says that those who do not pass the exam will be forced to change careers.
"But the exams will only be a threat to the industry if they are not approached in the right way and not tackled with enough energy."