Did ASIC drop the ball on personal advice?

Alex Burke,  Senior Writer,  No More Practice Education

Last week, we discussed ASIC's consumer research into the potential benefits of a new label for general advice.

The regulator found that alternative labels - "general information," for example - made no discernible difference to how consumers interpreted the advice they were being given. Instead of specific wording, ASIC's research found that it was primarily the circumstances in which general advice was provided that influenced consumer misunderstanding. 

Because of these findings, ASIC said it would not be making any recommendations to the Government about changing the label of general advice.

In a response, the FPA expressed its disappointment in ASIC's no-action position, arguing that while relabelling general advice is not a "silver bullet" to the problem, it is a necessary step in addressing the "harm caused by consumers misunderstanding the term ‘general advice'."

The FPA's statement continues: "Multiple Government reports have shown that consumers are confused about the difference between ‘personal advice’ and ‘general advice’, and often misunderstand what they are receiving." 

Justifying this, the FPA pointed to the recent High Court decision against Westpac, which involved two Westpac phone campaigns allegedly encouraging customers to roll their superannuation into Westpac-affiliated super accounts. These campaigns, ASIC said at the time, resulted in a $650 million boost in Westpac's FUM between January 2013 and September 2016, and were interpreted by customers as being personal advice despite being presented as general advice.

To prevent future misunderstandings in this vein, the FPA reiterated its recommendation that the term "general advice" be changed to "product information" and "strategy information". These terms, the association said, "better [reflect] the definition and [are] less misleading to consumers."

The FPA added: "Any replacement must ensure that the term ‘advice’ can only be used in association with ‘personal advice’ – that is, advice that takes into consideration personal circumstances."

As we discussed last week, though, given that these misunderstandings seem to occur regardless of how the advice is labelled (or whether it's labelled at all), advisers will need to be much more careful in the future when relaying general advice to current and prospective clients. 

 


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John Moreton

12/05/21

Dear Alex I'm very disappointed with the FPA's position that general advice should cease to exist. Should that eventuate, the only advice that will be available to Australians would be personal advice - the number of Australians who would have access to financial advice would reduce even further - and the costs to get access to that advice would continue to increase. In my opinion, the difficulties surrounding the provision of general advice stem from the types of people and organisations who are permitted to deliver general advice. Advice is defined in the oxford dictionary to mean - "an opinion or a suggestion about what somebody should do in a particular situation". When advice is provided by a person/organisation who will derive financial gain through the sale of a product or through the distribution of a product - then that advice is conflicted and should not be allowed. It is NOT advice - it is a sales pitch. I say that general advice should continue to be allowed - and, in this way, we're promoting the accessability and affordability of advice. But people/organisations who are permitted to provide general advice must be limited only to those people/organisations who do not gain a financial benefit from the outcome of that advice - in any shape or form (salary, commission, in any shape or form whatsoever). It's a nonsense to use the word advice when the person/organisation delivering that "advice" will receive a financial benefit from the customers decisions arising from that "advice". I have a large number of general advice clients. I provide them with advice and information to assist their decisions. This assistance is provided under a general advice warning - it is provided under a contract that the client and I have signed - I provide them with an annual FDS - and they have the opportunity to renew that contract each year (or not). In providing this service to these clients, my intention is to give them access to quality general advice - and support when they do not understand a communication from their super fund/insurer. I am a FASEA qualified financial adviser, a sole practitioner - and my only income is paid to me directly by my clients (no commissions or the like). My only remuneration is what is paid to me directly by my clients. If general advice was to cease to exist - I would retire, or move on to do something else. A valuable service to these clients would no longer exist - and they would not be happy. Let's have a system where general advice and personal advice remains available - quality and accessible advice is promoted - and, importantly, where conflicts of interest are no longer permitted. John Moreton 0433 233 588

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