ASIC recently came out with some independent research suggesting there’s “substantial gaps in consumer comprehension” of what financial advice is.
The report, which you can see in full here, argues there’s a disturbing gap in “understanding whether the advice [consumers] are getting is personal or not means many consumers are under the false premise their interests are being prioritised,” according to ASIC deputy chair Karen Chester.
Specifically, the research broadly found that many consumers aren’t aware of the concepts of “general” and “personal” advice. Only 53% could identify general advice, and even when given a warning about the limitations of general advice, about 40% “wrongly believed the adviser had an obligation to take their personal circumstances into account.”
What was the scope of the report?
March 2018, ASIC commissioned Whereto Research to conduct surveys covering the risks posed by general advice distribution models, overall use of financial advisers, barriers to getting advice and consumer attitudes towards the advice industry.
ASIC said it will publish a separate report about access to advice later this year. The regulator will also conduct further research into identifying a “more appropriate label for general advice” and test the effectiveness of warnings.
What issues were identified?
The report identified instances of poor conduct relating to the provision of general advice. These issues included:
- “Aggressive sales tactics” in general advice for direct life insurance delivered over the phone
- Marketing recommendations to consumers encouraging them to open a new super account or roll over existing funds into a particular fund “immediately after asking the consumer questions about their objectives, financial situation and needs”
- General advice models being used to promote SMSFs and the investment (through SMSFs) into “inherently risky ventures such as leveraged property purchases or foreign exchange trading”
What happens now?
As above, ASIC will be conducting further research into this topic. So far, the regulator has made three key recommendations. First, it will consider whether the word “advice” has the effect of “inflating consumers’ expectations about the relevance of the advice to their personal circumstances.”
Next, the report suggests making clear to consumers when general advice consists of sales or marketing recommendations. Finally, there should be more work done in contrasting general and personal advice, perhaps through different nomenclature.
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