In a submission to the Review of the Privacy Act 1988, the FPA has argued that all financial advice, whether or not it involves the recommendation of a financial product, should be subject to the Privacy Act framework.
This statement was made in response to question nine of the review's discussion paper, which asked whether or not there were businesses, acts or practices that should be covered by the small business exemption. The FPA said that advice, by its nature, involves "a practitioner collecting and holding a wide range of personal information relating to a client, including financial information and health information."
As the FPA noted, advice businesses are "largely subject to the Privacy Act framework," even in cases where annual business turnover is less than $3 million.
"In considering whether the small business exemption remains appropriate," the FPA continued, "the Government may wish to consider the definition of ‘reporting entity’ under section six the Anti-Money Laundering and Counter-Terrorism Financing Act 2006. Of the 54 items in that definition, most relate to the act of providing or arranging a financial product.
"A business that does not hold an AFSL and/or does not arrange a financial product will not be caught by this definition."
Here, the FPA is referring to advice businesses that may only provide strategic advice as well as financial and money coaches.
The response continued: "The FPA considers it is appropriate for all businesses that collect personal information in order to provide a professional service - whether this is financial advice, strategic advice or financial coaching - to be subject to the Privacy Act framework.
"Most Australians would expect the disclosure of such personal information to their financial planner or other professional would be covered by privacy safeguards, regardless of whether the service they receive includes the recommendation of a financial product or is authorised by an Australian Financial Services licence.
"The recommendation of a financial product should not be the determining factor in whether the Privacy Act framework applies."
Later in its submission, the FPA agreed with the idea that a standardised framework of notice would assist consumers in understanding how entities use their personal information. The association said this would have two key benefits: first, it would "ensure that disclosures are made in plain language that is focused on consumer understanding rather than addressing compliance risks for the organisation."
The second benefit, the FPA argued, is that it would promote a "broader understanding of privacy issues in the community and provide a common language that will improve the effectiveness of the disclosure system as a whole." However, the FPA also said that a standardised system should take into account the "variety of ways" adults learn information - whether that be "auditory, visual, kinesthetic or auditory digital."
The importance of clearly explaining ideas in financial advice is a key focal point of the new season of Secrets of the Money Masters, wherein behavioural scientist Professor Sharyn Rundle-Thiele explains the different approaches to communicating financial information to clients - especially in cases where their perspective is affected by existing biases.
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