The term ‘advice’ should be restricted to the activities of a professional adviser, according to the Productivity Commission, which has labelled ‘general advice’ in the financial services sector as misleading.
In its recently released draft report on competition in the Australian financial system, the Commission made a draft recommendation that ‘general advice’, as defined in the Corporations Act, should be renamed.
“Currently, the terminology of advice requires consumers to intuitively understand that general advice is like marketing; and personal advice is actually tailored to their situation and carries with it some protection against misuse,” the report stated.
“To ensure consumers are able to clearly distinguish between general promotional effort related to products and actual personal advice, use of the term ‘advice’ should be limited to effort that is undertaken on a client’s behalf by a professional adviser,” it added.
The Productivity Commission stated that it supported the testing of alternative terms for ‘general advice’ with consumers “…to ensure that misinterpretation and excessive reliance on this type of promotional information is minimised”.
The report stated the costs of rebadging existing ‘general advice’ products would not be substantial as any related electronic documentation would already be updated regularly.
I’d like to see many words and phrases that are used in the Financial Services Industry Regulation to have specific definitions applied…simply to save confusion for advisers and consumers alike. For example, when is providing “factual information” construed to imply that one has made an “Influencing Statement” and when is it not??? If however, it is interpreted by a compliance manager that by presenting “factual information” to a client (new or existing) you have indeed made an “influencing statement”, then under the regulations (or maybe it is the Licensee’s “Business Rules” it’s hard to distinguish sometimes) one is deemed to have entered into the personal advice area and therefore triggers the following…an updated Fact Finding; filenoting; Formulating the Advice; filenoting; researching other products; filenoting; discounting alternative strategies; filenoting; creating the relevant advice document; filenoting; presenting the advice document; filenoting; implementing the advice chosen or accepted by the client; filenoting; chasing up any outstanding requirements (UW or Admin); filenoting; documenting the applications have been received, processed and completed; filenoting; and closing the file. This, you have to believe is crazy but my interpretation of the regulations says that this is entirely possible?
Also, I believe ASIC have not made a clear distinction in the regulations between “Service” & “Advice”. The “Adviser Service Fee” (ASF) is exactly that…a “Service” Fee NOT an “Advice” Fee, but ASIC seem to be moving towards auditing ASF clients to see if you have given “Advice” for the Service Fee…hopefully you see my point. These are a few terms that need concise & separate meanings within the legislation…too much is left open to interpretation…in fact while we are at it why don’t we separate more clearly Risk and Investment. Risk is and always will be a product that is sold. Unfortunately, it is my belief that ASIC has prevented Riskies from selling benefits in an attempt to educate the client as to the value of Risk Insurance…they have done this through the BID and in-particular the area of affordability and understanding a client’s budget. What client who you have met for the very first time, is going to ever tell you what they can and can’t afford…If a client says they have discretionary spending of $200pm, then is it in their Best Interest to believe them, or is it in their best interest to educate (AKA – Scare the hell out of them) in an effort to help them understand that they are better off spending $500pm. My point is, when ASIC bans and Adviser for recommending cover a client can’t afford, then we have a problem. A mate of mine said the other day…Insurance is not expensive it’s just un-affordable…but when you don’t have the ability to educate consumers without running the risk of breaching unrealistic regulations, then how on earth is a consumer ever going to truly know the value of their cover. Rant over…
At long last someone with authority has belled the cat.
Every risk adviser in this country knows the abuses that go on with General Advice,
as delivered by non-planners in the banking industry and by the TV -direct
product floggers.
ASIC refuses to admit there is an elephant in the room with General
Advice. They think the provision of a couple of approved scripts to the call
centres run by the product floggers solves the problem. Apparently no one from ASIC
ever rang one of those call centres and pretended to be a genuine client just to see how that script is quickly abandoned. ASIC has never been explained how a caller is “better-off” by purchasing a complex life insurance product such as income protection over the phone from a product flogger, and not from a “personal advice “ adviser. There are no savings, just horrendous contracts!
Oh BTW, the banning of General Advice should apply to NFP industry funds, with Pre-Existing exclusions on default cover, all done under one of ASICs little General Advice Exemptions
I cringe every time I see an ad with a call centre operator saying “…and you have accidental cover for the first 3 months, so real security in case the unexpected…” Just another “General Advice”, which I call “marketing from a negative”.
A good initial starting point that will never come into force due to ASIC and the Government not understanding the industry. It’s not general advice, its product selling and that is what it should be called. I agree it should be extending to super funds as well as the dodgy TV ads.
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