Speaking at the SMSF Association Technical Summit, AFCA acting lead ombudsman – investment and advice Shail Singh said one of the main issues raised by complaints authority in the Quality of Advice Review was the level of consumer confusion around the terms personal and general advice.
“Consumers don’t understand the subtleties of it. They don’t understand that someone’s not acting in their interests when general advice is provided,” explained Mr Singh
“We see lots of disputes around that issue.”
A large number of submissions in the Quality of Advice Review have called for the removal of the term general advice.
Digital advice solution Scientiam said that replacing the term general advice with general information would strengthen consumer protections and minimise confusion.
The SMSF Association also called for the removal of the term general advice in its submission.
“Consumers will often interpret general advice as advice that does have regard to their personal circumstances. Adding to that confusion is the nuanced differences between the provision of factual information and general advice,” it stated.
Mr Singh said limited advice is another area where AFCA sees a lot of issues.
“One of the areas we focused on in the submission was around limited advice. We feel there’s often a lot of confusion among advisers in terms of understanding what the degree of inquiries are that are required,” he explained.
“I am often a bit shocked sometimes to see the level of inquiries required. For example, when a client comes in and says ‘I want a policy with cheaper premiums’, even I get a bit surprised about the extent of the information that is obtained.”
In its submission to the Advice Review, AFCA stated that many advisers were unclear on what is within scope when limited advice is provided and are unclear as to the extent of the inquiries they need to make to satisfy their obligations under the best interest’s duty.
The submission gave an example of a consumer approaching an adviser to establish an SMSF to invest in property and assuming the adviser will consider whether the property is a suitable investment.
“The adviser has a completely different understanding of the brief. A dispute is then brought against the adviser when the property performs poorly, because the consumer says they understood the adviser was endorsing the property investment,” the submission explained.
“The adviser defends the matter as they say the advice was limited to merely assisting the consumer with the SMSF.”
Alternatively, the submission also noted that difficulties can arise when the financial firm makes inquiries into a consumer’s circumstances that are unnecessary having regard to the type of advice being sought, which drives up the cost of advice.
“For example, a consumer may approach an adviser merely seeking a cheaper insurance premium, being completely satisfied with their level of cover,” it stated.
“Irrespective of the clear instruction the adviser determines the terms of engagement require them to do a comprehensive fact find. Such behaviour drives up the cost of advice, and dissuades consumers from obtaining limited advice, often, ultimately to their longer-term detriment.”
General Advice is one of the worst terms ever by Regulator’s.
But given it was designed to allow Insto’s to flog as many financial products as possible without any Real Advice, it’s a Government designed fiasco.
The only way to stop this rubbish is to end the rubbish term General Advice and replace it with Product Information.
[i]“Irrespective of the clear instruction the adviser determines the terms of engagement require them to do a comprehensive fact find. Such behaviour drives up the cost of advice”[/i]
I have in the back of mind something called FASEA and a requirement that an adviser is obligated to make reasonable enquiries? Mainly standard 2 but also 5 and 6.
This is what happens when you have an inconsistent set of standards founded on a lack of understanding of how the advice process actually works, or can be reasonably and cost effectively conducted, that is not consistent with the Corporations Act.
And he wonders why advisers are confused????
The issue is that advisers and Licensees are not sure of how ASIC and AFCA will interpret the situation if there is a complaint. The general feeling is that if there is a small reason to blame the adviser, the adviser will be blamed. And it will cost the adviser. So it is better to do more than required and charge the client or decline to do the job.
Simple answer, client says “i didn’t understand” (no matter what the issue is or what they claim they didn’t understand) and the adviser pays the AFCA fee and is forced to refund EVERY fee ever paid to the adviser by the client over whatever period.