(Money and Life)
Are all types of advice about financial products in your best interests? According to a recent ASIC report, the ‘general’ and ‘personal’ labels make it hard to know what type of financial advice you’re getting.
Thanks to a new research report from ASIC, we may be seeing a much needed change in how different types of financial advice are understood by consumers. For many years, anyone working in the financial services industry has been required to describe advice services as ‘general advice’ or ‘personal financial advice’.
But according to the ASIC findings, these terms are confusing to say the least. Their research shows that while 53% of customers could correctly identify general advice, only 19% could identify personal advice.
What’s the difference?
As well as signalling the need for clearer communication on different types of advice, the research also throws up even bigger warnings concerning customer expectations of advice they’re receiving.
So what are the differences between these two advice categories?
General advice does not take personal financial circumstances into account and you must be provided with a warning to this effect. So when recommending a product or service under a general advice arrangement, a financial services provider is not required by law to make a recommendation that best serves your interests.
Personal advice on the other hand must be based on a careful review of your financial position and goals and consider your best interests at all times. There are in place to make sure personal advice meets these requirements. These same regulations don’t apply to general advice.
What needs to change
ASIC’s Mind the Gap report highlights just how alarming customer confusion about different types of advice is. When acting on general advice, they might expect to benefit from consumer protections that simply don’t apply.
“This disturbing gap in understanding whether the advice they are getting is personal or not means many consumers are under the false premise their interests are being prioritised, when no such protection exists,” said ASIC Deputy Chair, Karen Chester.
The report also notes the increasing number of complex financial products provided under a general advice arrangement, leading to greater potential for customers to make choices that put their finances at risk. “ASIC is seeing increased sales of complex financial products under general advice models – so not tailored to personal circumstances – leaving many consumers, especially retirees, exposed to the potential risk of financial loss,” says Chester.
This confusion about different types of advice was also flagged in a recent Productivity Commission report on competition in the financial services industry. In a submission to the Productivity Commission, the Financial Planning Association (FPA), included a number of recommendations designed to ensure clients can be clear about whether they’re receiving the best advice for their circumstances.
The most important of these recommendations included:
- Only using the term ‘advice’ when the financial service and recommendations provided take into consideration personal circumstances.
- Renaming general advice to remove the confusion. The FPA suggested ‘general product information’ or ‘financial product information’ as alternative phrases.
- All licenses and regulations that currently apply to general advice should remain in place, regardless of the name change.
- The renamed ‘general advice’ services should continue to carry a clear warning that information provided is not financial advice.
- A product recommendation