Confused by the term ‘general advice’? If so, you are not alone. According to a recent ASIC report, many people confuse advice labelled as ‘personal’ and ‘general’ and as a result may be exposing themselves to the risk of making poor financial decisions.
The ASIC report, Financial advice: Mind the gap (REP 614), presents new independent research on awareness and understanding of general and personal financial advice and identifies substantial gaps in consumer comprehension.
“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 difference between General and Personal advice
General Advice does not take your personal financial circumstances into account. A financial services provider is not required by law to make a recommendation on a product or service that is in your best interest; however they are required to provide you with ‘general advice warning’ stating that the advice does not take into account your personal circumstances.
Personal Advice takes into account your personal financial circumstances. These could include financial objectives, employment, current liabilities and assets. If a financial advisor is offering personal advice, they are obliged to take into account your financial circumstances.
What needs to change
The ASIC report highlights the level of customer confusion surrounding the different types of advice available. 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.
In a submission to the Productivity Commission, the Financial Planning Association (FPA) included a number of recommendations designed to reduce confusion and ensure clients are clear about whether they’re receiving the best advice for their financial circumstances.
Important points of these recommendations include:
- 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 without understanding your goals, objectives and financial situation is not personal advice.
How to protect yourself
When seeking financial advice, it is imperative to understand what type of advice is being offered. Don’t be afraid to ask questions.
Keep in mind:
- Personal financial advice can only be provided by an individual, not a financial institution.
- The person providing advice must be a qualified financial planner listed on the Financial Adviser Register.
- Personal financial advice will always include a Statement of Advice (SOA), with a number of recommendations tailored to your circumstances.
A Certified Financial Planner is trained to deliver advice to the highest standards. They will take the time to get know your financial goals and circumstances and tailor advice to your specific situation.
Reference:
https://www.moneyandlife.com.au/financial-planning/General-advice-is-no-advice-at-all?/