A number of Australians are confused over “general” and “personal” advice, exposing them to greater risk of poor financial decisions, according to new research released by ASIC.
The ASIC report, Financial advice: Mind the gap, revealed that only 53% of those surveyed correctly identified general advice, and that even when provided the general advice warning, nearly 40% wrongly believed that the adviser had an obligation to take their personal circumstances into account.
“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 Karen Chester, ASIC deputy chair.
ASIC said it is important that consumers understand the distinction between personal and general advice and whether the adviser has a legal obligation to act in their interest. The Future of Financial Advice (FOCA) protections only apply 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.
“The survey also revealed that the responsibilities of financial advisers, when providing general advice, is not well understood,” Chester said. “Nearly 40% of those surveyed were unaware that advisers were not required by law to act in their clients’ best interests.”
ASIC flagged an increasing need for financial advice, due to ageing population and increasingly complex range of financial products, but said much of the advice is likely to be general advice, which is of limited use to consumers.
“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,” 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.”