Why general advice, is no advice at all
By Dante De Gori, CEO, Financial Planning Association of Australia.
Trusted and transparent financial advice is the right of every Australian. And whilst it is extremely important that more Australians seek advice, it’s just as important they know what they’re getting.
There is significant confusion among consumers, and within industry, media and Government about the definitions and roles of financial planners/advisers who provide personal advice, and those who simply sell financial products.
In fact, the level of confusion around this terminology is not just the cause of great debate, it’s resulted in a high-profile court case between Westpac Banking Corp and the Australian Securities and Investments Commission (ASIC).
What’s the difference between ‘general’ and ‘personal’ advice?
There is a significant legal and technical difference between ‘general’ and ‘personal’ advice. Unfortunately, there have been cases where financial institutions have misused the ‘general advice warning’ and misled consumers into believing they have received ‘personal advice’.
So, what are the official definitions of the terms? According to ASIC, general advice “does not take into account your particular circumstances, such as your objectives, financial situation and needs. For example, if someone gives you information about a product that might be suitable for you, but does not take into account your overall financial goals or actually recommend you take up the product, it is general advice.”
Personal advice is best sought when you want a recommendation that takes your specific situation into account. For this kind of advice, “it’s important that you only talk to someone who is a licensed financial adviser. The cost of the advice will depend on the scope and kind of advice you receive,” says the regulator.
These definitions appear to be quite clear at first. However, when an employee of a financial institution or super fund has a one-on-one conversation with someone, even if they give a ‘general advice warning’, it doesn’t mean that they won’t stray into personal advice. Also, the person having the conversation will likely consider that they are receiving personal advice.
General advice was originally intended for larger audiences, such as seminars, and not for conversations between financial institutions or super funds and customers on the phone. When a financial institution or super fund puts in place a ‘general advice’ model, it means the employees are prohibited from giving out ‘personal advice’ when dealing with customers. However, the problem is that in many cases the reality is different and the consumer believes they are getting advice.
The need for separation of financial advice and product information
Financial advice should always require that the advice addresses the needs, objectives, and
circumstances of the client, and the client’s best interests should always be prioritised over the interests of the advice provider and related entities. Anything else, should not be labelled advice.
The FPA has consistently called for the separation of financial advice from financial product marketing and product information. We were encouraged that the Financial System Inquiry Final Report in December 2014 adopted the same position, and the Parliamentary Joint Committee on Corporations and Financial Services also came to a similar conclusion on this issue.
The FPA recommends that the Government should amend the Corporations Act to change the term ‘general advice’ to ‘general information’, and also recommends that the terms ‘financial advice’ and ‘financial product advice’ should only apply to personal advice as defined by the Corporations Act.
General advice poses a significant risk to consumers when they do not know how to distinguish if they are receiving a financial advice service, or are receiving financial product information. Australians should not have to contend with this uncertainty and we urge the Government to implement our recommendations in full.
# # #
By Dante De Gori, CEO, Financial Planning Association of Australia.