ASIC rejects ‘general advice’ change

ASIC’s recent independent consumer research found that changing the “general advice” label alone is unlikely to prevent confusion about the nature of general advice. 

The regulator commissioned the consumer research in response to the Financial System Inquiry Final Report and the Productivity Commission Inquiry Report into Competition in the Australian Financial System. 

The reports recommended that general advice should be re-labelled to ensure that consumers are able to clearly distinguish between personal advice and general advice. This is important because general advice does not come with the same legal obligations as personal advice. For example, providers of general advice are not obliged to act in the best interests of their client.

“The research found no evidence to suggest that changing the general advice label, including adding the word ‘only’ to the general advice label, will have any measurable effect on consumers’ perceptions about the nature of the advice given,” ASIC said.

“This includes perceptions about the personalisation of the advice, understanding of the advice provider’s obligations and the importance of seeking further information.”

Between January and May 2020, Newgate Communications undertook qualitative and quantitative research to identify and hypothetically test possible alternatives to the general advice label.

The research found that there was no evidence that a change in the label will change consumers’ understanding of general advice.

“The alternative labels that were hypothetically tested did not make any measurable difference to consumers’ understanding of general advice and many participants in the research did not notice the label,” ASIC explained.

“In fact, the survey results showed no effect on consumers’ understanding of general advice when a label was used compared to when no label was used. The majority of participants in the qualitative research also indicated they did not notice the label.”

The research also found that no alternative labels to “general advice” were found to be a significantly better fit with the description of general advice and the circumstances in which general advice is received could significantly increase the risk of consumer misunderstanding of the nature of the advice given.

Consumers also felt it was important to seek further information regardless of what label was used to convey general advice, according to ASIC. It noted there are also other ways advice providers can clarify what is meant by “general advice”.

“The research also identified potential means of clarifying general advice to consumers such as by contrasting the descriptions of general and personal advice, and explicitly stating in the general advice warning that the provider of general advice is not required to act in the consumers’ best interests,” the regulator explained.

Change still needed

In a response to the findings of the report, the Financial Planning Association stated that it was disappointed ASIC has decided not to make any recommendations to the government to address the harm caused by consumers misunderstanding the term “general advice”.

FPA CEO Dante De Gori said that while renaming “general advice” is not a silver bullet, it is the first step in make lasting change. 

“At an appropriate point after renaming ‘general advice’, the government should review the use of general advice to determine whether further changes are needed to protect consumers,” he said.

“Multiple government reports have shown that consumers are confused about the difference between ‘personal advice’ and ‘general advice’, and often misunderstand what they are receiving. 

“This is seen in the High Court decision to dismiss Westpac’s appeal against the Full Federal Court’s finding that two Westpac subsidiaries provided ‘personal advice’ when they claimed to be providing ‘general advice’.”

Mr De Gori said it stood by the FPA Policy Platform — Affordable Advice, Sustainable Profession — that the term “general advice” be changed to “product information” and “strategy information”, which better reflect the definition and are less misleading to consumers.

“Any replacement must ensure that the term ‘advice’ can only be used in association with ‘personal advice’ — that is, advice that takes into consideration personal circumstances,” he said.

“The FPA will continue to strongly advocate for one single meaning of the word ‘advice’ in the context of financial services, and that is personal advice. ‘General advice’ is a term that continues to be misunderstood, misused and is misleading to consumers, as seen in the action ASIC was forced to take against Westpac in the High Court.”