The last decade has seen a number of scandals where people have been given poor advice (or no advice at all, according to ASIC’s report yesterday – Financial advice: fees for no service). When this happens with other professionals like accountants and lawyers, the problem is quarantined to the wrong-doer. However, the adverse publicity around financial advice in the media and in Parliament is contagious and has tarnished the whole financial advice industry.
In addition, it is not uncommon for consumers to complain about the cost of financial advice, which is transparent following FoFA. Most people expect to be given their advice free as part of a broader service or to pay a nominal fee of no more than $500 to $1,500 depending on their circumstances. So, while the world becomes more complex and the future seems more uncertain than normal, the industry should be in a strong position to demonstrate the value of advice. Yet, all the negatives have meant the message is not getting through.
Types of advice
People seek information to guide them in making informed decisions. They don’t segment this into types of advice but the industry is regulated depending on what is provided. It could be information about setting an annual budget, defining types of investments and how they operate or comparisons of mortgage prices. This all falls under general education and people involved in giving assistance in these areas do not need to be licensed as advisers.
This support becomes advice when it is likely to be acted on by the consumer in the selection of classes of products or individual products. ASIC regulates the provision of this advice. If it deals with investment, superannuation or insurance strategies but is unrelated to the individual’s circumstances it is general advice. If it considers at least some of the person’s specific objectives or needs, it is personal advice.
Increasingly, some of this advice, both general and personal, is given electronically as robo-advice. ASIC’s RG 255¹ describes this in some detail.
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