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Posted on May 19th, 2011 in Industry News

If your advisor looks more stressed than usual recently, she may be preparing for her FAIS exams. In a move that has been highly controversial in the industry, financial advisors have been asked to go “back to school” – to undergo a challenging series of examinations that tests their understanding of the Financial Advisory and Intermediary Services Act and other relevant regulations, and also their knowledge of the lines of business they specialise in. The exams are not easy, and for many advisors, this is the first time they have been asked to “hit the books” in decades. Tension levels are mounting – not passing the first level of the exams by the end of 2011 means that an advisor would no longer be allowed to continue their work.

What is the purpose of these new exams? Do they add value to the industry, or are they intended to erode the number of financial services providers and representatives, as some suggest?

Fit and Proper requirements were first legislated under the Financial Advisory and Intermediary Services Act (FAIS Act), in an effort to ensure that financial advisors and intermediaries were providing financial advice and intermediary services at a competent and professional level. The Act was however not actively enforced, and seemed to have little effect on industry practices. The FSB came to the realisation that the only way to ensure that the requirements of the FAIS Act were effectively implemented is via an accreditation process, which actively tests understanding of the regulatory and product environment.

The regulations were then amended to require all financial advisors and intermediaries to pass regulatory examinations under the supervision of the Financial Services Board (FSB).  The examinations are compulsory for all Key Individuals (persons who manage and oversee financial service providers) and all Representatives (the advice-givers).

The Regulatory examinations have two distinct levels with the first level due to be written by 31 December 2011 and the second level by the end of 2013.

The first level examinations test knowledge and understanding of the regulatory environment and specifically the FAIS Act, its codes, regulations and the fit and proper requirements. They also test knowledge about certain aspects of the Financial Intelligence Centre Act (FICA).  The examinations are in a multiple choice format and the pass-mark is 65%.

The second level examinations will be testing knowledge of financial products.  The aim of the examinations is to professionalise the industry and to broaden knowledge of the applicable legislation.

What this means for the financial services industry is that all those individuals who are licensed as Key Individuals or Representatives must successfully complete the first level examination by 31 December 2011.  Those entering the industry from 1 January 2010 must pass these regulatory examinations within 2 years of appointment.  The exam cost is R900 per exam and one may write as many times as necessary.  If a Representative or a Key Individual does not pass the examinations by the deadline, he or she will no longer be allowed to give advice.

There has been a lot of negativity in the industry regarding the examinations.  Advisers have complained that the multiple-choice questions are too difficult, that the examinations are only available in English, that the deadline (for the first regulatory exam – December 2011) is too tight and that the required pass mark is too high.

We at JMCA have opted to write the examinations sooner rather than later and the majority of our representatives have either passed the examinations already or have registered to write soon.  We have seen this as a positive opportunity to get to grips with the FAIS and FICA legislation and we have embraced the challenge.  Our enthusiasm and commitment has been rewarded with positive results thus far.