General advice is not specific to a person’s circumstances. It does not attract protections such as requiring the firm to give priority to the interests of the potential client.
But the ASIC survey found only 53 per cent of people could correctly identify general financial advice even though the warning of general advice was provided to them in a scenario question.
Only 19 per cent of those surveyed could identify personal advice. Most thought it was either general advice or a mix of personal and general.
When asked about general advice, more than a third of those quizzed believed incorrectly it had to be in a consumer’s best interest, consider a person’s financial circumstances or identify potential risks to the individual.
ASIC deputy chair Karen Chester said the findings showed there was a desperate need for action as soon as possible.
“The 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,” she 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.”
A Productivity Commission inquiry into the financial sector has recommended the continued use of the term personal advice but that another form of words be used for general advice.
The Hayne royal commission found examples of financial products sold under general advice terms that should have been offered under personal advice provisions.
ASIC noted the growing promotion of self-managed super funds under general advice that encourage investment in “inherently risky ventures” including leveraged property or foreign exchange trading.
Ms Chester said as the population aged there would be more demand for financial advice. Without people understanding the advice they received there was the potential for substantial financial risks to develop.
“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,” she said.
Shane is a senior economics correspondent for The Age and The Sydney Morning Herald.