General advice exemption not relevant to financial advisers

The Association of Financial Advisers (AFA) refutes recent reports that the general advice exemption proposed under the Future of Financial Advice (FoFA) amendments will mean that conflicted remuneration will be paid to financial advisers.

“These claims are totally misconceived,” said AFA CEO Brad Fox.

“The interpretation of the FoFA Amendments relating to general advice have been reported as meaning that financial advisers will provide general advice in order to be able to receive conflicted remuneration.  These claims are a misinterpretation of the purpose of the draft FoFA amendments.”

The AFA understands that the general advice amendments were drafted to facilitate the general advice services provided by banks and call centres, etc. and will have no relevance to the activities of financial advisers who provide personal advice and have ongoing relationships with their clients.

The exemption for general advice was part of the Coalition’s policy position on FoFA and dates back to their dissenting report to the PJC Inquiry into FoFA in February 2012.

“The AFA has, however, never advocated for this exemption on behalf of financial advisers,” Mr Fox said.

“The AFA FoFA policy objectives have been on the public record for more than two years and do not include a general advice exemption.”

General advice is the provision of a recommendation or statement of opinion that is intended to influence a person to acquire a financial product, where the provider has not considered the person’s objectives, financial situation or needs.

“Unfortunately these recent reports on the general advice exemption could be interpreted to mean that financial advisers are seeking to exploit the FoFA amendments and continue to use conflicted remuneration models,” Mr Fox said.

“This could not be further from the truth.”

The AFA has outlined reasons why it is impractical for financial advisers to provide general advice:
– Self-employed advisers typically have a range of products to choose from. It is not possible to have a general discussion with a client and then narrow it all down to enable recommending a specific product all with no reference to the client’s personal circumstances.  This is contrary to the central role of a financial adviser providing personal advice.
– For an existing client, where an adviser already knows the client’s personal circumstances, it is extremely problematic for the adviser to claim their advice is general advice.
– It is unlikely that commission paying products will remain available in the financial advice landscape.
– Licensees, who are responsible for the conduct of financial advisers, are most unlikely to support a general advice business model for financial advisers.
– Product providers, who have no visibility over the form of advice provided to the client, simply will not agree to pay commission to financial advisers for general advice. They can have no way of knowing that general advice was given and would be in breach of the conflicted remuneration rules if the advice was personal.

The AFA remains concerned that a solution has not yet been identified for the ongoing remuneration of corporate superannuation advisers. Whilst complications exist, there is some possibility that the general advice exemption may provide some form of solution for corporate superannuation advice.  The AFA does not support this approach and would like to see an alternative solution developed to address the remuneration of corporate superannuation advisers, so that they can both recommend a default superannuation fund to an employer and provide ongoing services to the employer and the members.

“It is unfortunate that these claims about the general advice exemption are being used to damage the reputation of financial advisers and the regulatory framework in which they operate,” Mr Fox said.

“Australia has the most robust regulatory regime in the world. The AFA is committed to a culture in which its members are dedicated to improving the quality of advice to Australians.  Australians need advice to provide greater certainty that they can manage the financial risks of life and achieve their financial goals, as they move towards retirement.”

Mr Fox said AFA members are primarily small business owners who have close personal relationships with their clients.

“They care about their clients and the ability for their clients to reach their goals,” he said.

“The provision of general advice is inconsistent with the manner in which financial advisers help their clients to achieve their objectives. While the general advice exemption may have a role to play elsewhere in the financial services industry, it is simply irrelevant for the financial advice profession.”