Important note: General advice does not offer the same consumer protection and should not be confused with “personal” advice according to the Productivity Commission who is calling for the term “general advice” to be scrapped. Fund managers, online direct insurance and industry super funds hide behind the “general advice” disclaimer whereas consumers don’t distinguish the difference between general and personal advice. The “best interest duty” only applies to consumers who receive personal advice.
Read an article on this below:
The Productivity Commission is calling for the existing notion of general advice to be scrapped.
In its draft report into competition in the Australian financial system, the Productivity Commission argues the use of the term ‘advice’ should be limited to work undertaken by a professional adviser on behalf of a client.
Consumers are unable to clearly distinguish between the general promotional effort related to products and actual personal advice, the draft report reads. The Commission labelled general advice “misleading” and called for consumer testing of alternative terminology.
“Currently, the terminology of advice requires consumers to intuitively understand that general advice is like marketing; and personal advice is actually tailored to their situation and carries with it some protection against misuse,” the report states.
The Commission also stated that the Future of Financial Advice reforms have contributed to consolidation in the asset management and financial advice markets, meaning that while consumers may be better protected against poor advice they are also being offered a much narrower range of in-house products.
With the exception of wealth management due to the FoFA reforms, the Commission said providers in product markets are using terms and conditions to shift liability to consumers.
It found overwhelming evidence that few consumers read or understand terms and conditions for the products they purchase as they are “too dense, multi-layered, and poorly designed to understand.”
“It would not be hard to conclude that a segment of the financial system is motivated to keep it that way. Financial literacy of the general population is also low. Even when ‘consent’ has been given, there can be a clear lack of understanding of terms and conditions of consent, and the ‘take it or leave it’ nature of many products discourages consumer engagement,” the report reads.
The Commission proposed a new regime under which the obligation to identify appropriate target and non-target markets for products would fall directly on issuers and distributors of products.
“Such a regime should be an approach to financial product disclosure that recognises incentives faced by providers and the realities faced by consumers, and takes advantage of digital data published in real time to show what the market opportunities are,” the report states.
The Commission is also considering recommending to ASIC that financial advisers be able to provide advice on select credit products, namely home loans, personal loans and credit cards. It has called for consultation on the merits of such a proposal; which credit products should be included; the nature of any duty advisers would have to clients; different licensing approaches; and regulatory costs and the impact on the industry.
The Productivity Commission’s final report is expected to be handed down by 1 July 2018.
BY JAMIE WILLIAMSON
WEDNESDAY, 7 FEB 2018