‘Failure rate is going through the roof’: Stockbrokers rail against mandatory compliance test

Some of the nation’s most prominent stockbroking firms are railing against a mandatory ethics test that has resulted in mass failures, arguing it is misguided and discriminates against the most experienced industry professionals.

Major broking firms including Bell Potter, Morgans and Shaws have experienced excessive failure rates in the new compliance exam, which was introduced following the banking royal commission and must be passed by the end of this year. With sittings only available once every three months, concern is mounting among brokers that time is running out to pass the test, and that failures could spark an exodus of the industry’s most experienced advisers.

Morgans executive chairman Brian Sheahan says the stockbroking test is not “fit for purpose”.Credit:Rob Homer

Morgans executive chair Brian Sheahan predicts around 10 per cent of his brokers could be forced out the door at the end of the year, with the most recent pass rate on the test at his firm as low as 30 per cent. “People were saying from the beginning this is a mess,” Mr Sheahan said. “Now, the failure rate is going through the roof.”

Mr Sheahan said the exam is “not fit for purpose” because it tests issues that are irrelevant to stockbroking, like insurance and superannuation.

“To be honest, as a business and employer of people, I really don’t want my people who are stockbrokers, whose job is to work with the markets … to start pretending they know about insurance. That’s more dangerous than safe.”

Two industry sources who both spoke on the condition of anonymity because they were not authorised to speak to the media said staff at prominent firm Bell Potter had a 100 per cent fail rate at the November exam. Bell Potter declined to comment. Meanwhile, more than 60 per cent of brokers at Shaw and Partners also failed the exam.

“They’re spending nights, weekends, and doing everything they can to prepare,” said one of the sources. “There’s going to be a significant exodus across the end of the year, that’s a fact.”

Mr Sheahan said the fail rate was highest among stockbrokers who had the most experience, adding it would be detrimental to the industry and broader community if these brokers were booted out. “Stockbroking is an experiential career. You learn more about markets everyday or every time you go through another tech crash or GFC.”

Mr Sheahan said his brokers were struggling with more than just the study load. “I know the emotional side of it with people is that it’s really humiliating. We’ve got people who have been very senior on the stock exchange, going back many years, who have wonderful performance records, wonderful compliance records, saying it’s just humiliating.

“If any fail more than once or twice, they’re not going to do it again.”

Ord Minnet chief executive Karl Morris was one of the few stockbrokers to pass the FASEA exam on his first attempt.Credit:Glenn Hunt

Ord Minnett chief executive Karl Morris said he was “lucky” to have passed the exam on his first attempt. But he said many of his colleagues have failed because the content is geared towards financial advisers.

“At the end, I had no idea whether I passed,” Mr Morris said. “I don’t have problem with doing a national exam. I do have an issue that it doesn’t seem to be too ambiguous and a lot of the questioning is too broad.

“Our occupation is giving advice on direct assets, but also raising capital for the country. That’s what we do.”

The test is run by the soon-to-be-defunct Financial Adviser Standards and Ethics Authority but must be taken by a wide range of occupations in the financial services industry, including accountants, stockbrokers and mortgage lenders who are also licensed to provide advice.

The banking royal commission revealed financial advisers were incentivised by the big banks or wealth companies to peddle in-house products that were not in the best interests of clients. Mr Sheahan said now the entire industry had been penalised.

If they fail, it’s a cliff. They are about to get pushed off the cliff, through no fault of their own.

“The banks did really good job of deflecting what really happened. They decided to sell off these businesses and leave the headache for everyone else in industry.”

Judith Fox, chief executive of the Stockbrokers and Financial Adviser Association, said around 65 per cent of all stockbrokers failed the November exam because two-thirds of the questions focused on insurance.

“Stockbrokers don’t handle insurance. They refer people on. They’re not authorised to give advice in insurance,” Ms Fox said. “Even in the practice exam, there’s questions about aged care. These are questions that require technical knowledge.”

“It’s throwing stockbrokers into despair, they go how am I meant to pass an exam that’s about things I don’t deal in?” Ms Fox said.

“These are people, with no complaints, with happy, longstanding clients, being asked to sit a financial planners exam. If they fail, it’s a cliff. They are about to get pushed off the cliff, through no fault of their own.”

Mr Fox has lodged a number of complaints with FASEA, calling on the body to create new exams that are tailored to specific professions, but she said these have been routinely ignored.

“We’ve said we think this is discrimination. You can’t ask them to sit an exam that’s about a different service than what they offer,” Ms Fox said. “Investment in equities is totally different from financial planning … It’s been driving us absolutely batty.”

FASEA chief executive Stephen Glenfield said the exam asked participants to apply an ethical lens to range of scenarios and did not require technical knowledge. He rejected calls to create an industry-specific test, but said the next exam results will include more granular feedback after receiving complaints from the industry.

“I do understand it. It is stressful. You do have to pass to continue practicing. We’re trying as best we can to help people understand through webinars and providing practice exams.”

Mr Glenfield said the results had varied from firm to firm, adding the average pass rate was now 89 per cent across all occupations.

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