An open letter to the Skills Council from John Ellis
The LIA welcomes the opportunity to comment on the proposals on modular exams set out in your March 17 letter.
Qualifications and appropriate exams
The concept appears to be emerging in section eight of the consultation paper that the exams (FPC etc.) currently listed as approved by the FSA will be broken down into modular steps which have their own independent status.
So effectively we have moved not only from 'approved' to 'appropriate' but also from 'qualification' to 'examination'. Section eight appears to be suggesting that there could be 'nonappropriate' exams which could be part of a package put to the Skills Council for approval.
If some examination bodies were to offer a package containing both 'appropriate' and 'non-appropriate' exams, would there not be a temptation for authorised firms to seek easier options and, as a corollary of that, that some exam bodies might be tempted to present a qualification containing only 'appropriate' exams? The merit of the FSA's recognition of a certificate or a degree as an 'examination' is that it can define the knowledge needed for a particular role.
We believe the starting point for your project should be the identification of job roles, the competencies related to them and the creation of qualifications designed to fit those roles. Otherwise it will no longer be possible for a member of the public to see the extent to which a person performing a function on their behalf (e.g. financial advice) is qualified to the right level. If such matters were to be left to voluntary industry action, we predict a fall in standards.
We are in favour of a modular system as it provides the opportunity for a person to take a qualification in manageable stages. It also offers building blocks from which more than one qualification can be created, to align with closely related to job functions.
However, if modules are framed too broadly individuals may find they are studying for and taking exams that contain material not relevant to their job role. An example of this is the proposed UK Financial Services, Regulation and Ethics Module which in its present form is related to the needs of a retail investment adviser. It would not be appropriate, as appears to be suggested, for mortgage advisers to take it. Their regulation is different and a different module is needed for them if the current modular breakdown is maintained.
Attention should be given to creating sub-modules which could be more readily mixed and matched. This would bring about greater focus and avoid individuals being required to study for and take exams containing unnecessary and confusing information.
It is not clear from sections 17 and 18, what qualification level we are discussing. The Bloom's Taxonomy approach does not reveal much about levels and, as an industry (and indeed as a regulator or Skills Council), we should have views about the level most appropriate for giving good quality financial (or mortgage) advice to the public. Again, the question of relating exams/qualifications to job roles arises.
A further question to be addressed is whether levels of mis-selling or other compliance failings may be traceable to failures to enforce a particular level of knowledge and application of that knowledge. If that is the case (and we believe it is) it would surely be irresponsible not to deal with knowledge and application failings in the current exercise.
Some missing subject areas
What follows is a selection of obvious gaps. There are others, and also questions about logical sequence and hierarchy of subject matter which we would hope to address in discussion.
Tax planning should be widened to cover basic employment and pension tax planning. The subject cannot be adequately dealt with in the basic regulation module.
Estate planning involves knowledge of wills, trusts, protection, Inheritance Tax and Capital Gains Tax as well as investment.
Life events and stages are fundamental to the process of financial advice. Financial advisers need to be familiar with the main issues. e.g. school and university fees/costs, going abroad, planning for retirement etc.
Prioritisation of needs and wants is again a key skill for the financial adviser involving knowledge and understanding of client priorities, expenditure planning and budgeting, maximum use of scarce resources and the inter-relationship between protection and savings.
Borrowing risks should also be addressed including comparisons between fixed and variable rate loans, short and long-term mortgages, repayment vehicles, repaying the mortgage and saving for a pension.
You will gather from the above that the LIA view is that a good deal more work needs to be done on this package. There are some fundamental conceptual problems and also a good many technical problems which need to be addressed.
Head of public affairs