Consumers confused by meaning of ‘general’ advice, ASIC
Only 53 per cent of people know the meaning of ‘general’ advice, a survey conducted by ASIC revealed.
ASIC's report, Financial advice: Mind the gap, presents new independent research on consumer awareness and understanding of general and personal financial advice, identifying substantial gaps in consumer comprehension.
The survey not only revealed consumers are not familiar with the concepts of general and personal advice, but only 53 per cent of those surveyed correctly identified ‘general’ advice, ASIC revealed.
Furthermore, the commission found that when provided the general advice warning, nearly 40 per cent of those surveyed wrongly believed the adviser had an obligation to take their personal circumstances into account.
The report highlights the importance of consumer awareness and understanding of the distinction between personal and general advice, with the Future of Financial Advice (FOFA) protections only applying when personal advice is provided.
These include obligations for advisers to act in their client’s best interests, to provide advice that is appropriate to their client’s personal circumstances and to prioritise their client’s interests. These obligations do not apply when general advice is provided.
"The survey also revealed that the responsibilities of financial advisers, when providing general advice, is not well understood. Nearly 40 per cent of those surveyed were unaware that advisers were not required by law to act in their clients’ best interests," ASIC deputy chair Karen Chester said.
ASIC anticipates the need for financial advice to grow, reflecting an ageing population and many financial products, especially retirement products, becoming more complex. ASIC reports that much of the advice is likely to be general advice, and while appropriate in some circumstances, it is inevitably of limited use.
"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," Mr Chester said.
"And whilst the financial services royal commission, and the government’s response, dealt with the most egregious risks of hawking of complex financial products, consumer confusion about what is personal and general advice needs to be addressed."
The report’s findings reinforce those of the Murray Financial System Inquiry and the Productivity Commission reports on the financial and superannuation systems. Those reports made recommendations about the use of the term ‘general advice’, which is likely to lead to false consumer expectations as to the value of and protections afforded to advice received.
"This consumer research is timely. It comes as the government is considering policy recommendations on financial advice from the Productivity Commission’s twin reports on Australia’s financial and superannuation systems," Mr Chester explained.
"And at a time when the financial system itself undergoes much change, following the intense scrutiny of the financial services royal commission, including considering new financial advice and distribution business models."
ASIC noted it will conduct additional research to identify a more appropriate label for general advice in 2019.