Stakeholders are increasing calls to take the word ‘advice’ out of the terms ‘general advice’, ‘intra-fund advice’ and even ‘robo advice’ in order to make clear to consumers the difference between financial advice and information.
According to The Adviser Association head Neil Macdonald, the Corporations Act 2001, which enshrines the use of the terms ‘general advice’ and ‘personal advice’ as forms of financial product advice, should be amended to properly reflect what is being provided.
“Clients get confused about what’s advice and what’s not,” he tells Professional Planner. “A lot of people think they’re getting tailored advice when they’re just getting advice on a product.”
Financial Planning Association head of policy Ben Marshan says his group has long campaigned policymakers for change.
“It should be renamed to something like product information and strategic information,” Marshan says. “The terminology would then better reflect what’s being provided.”
The FPA argued the case for a change to the use of the term ‘general advice’ in its five-year policy platform release last year. In 2017 the group also lobbied the government to change the term ‘general advice’ to ‘general information’ amid concern the banks were taking advantage of consumer uncertainty to sell product.
General advice “poses a significant risk to consumers when they do not know how to distinguish if they are receiving a financial advice service or… product information,” FPA CEO Dante De Gori told press at the time.
Marshan says terms like ‘robo advice’ also contribute to this confusion.
“There’s no robots and there’s no advice,” he says, noting that he prefers to use the term “automated product selection tool”.
No change to Corps Act
Consternation over the labelling of advice has permeated the industry for years, with little to show for it.
The 2014 Financial System Inquiry (known as the Murray inquiry) sought views on renaming ‘general advice’ as ‘product information’ and restricting use of the term ‘advice’ to ‘personal advice’. The consensus from industry was that there was too much ambiguity between the two.
Even the Australian Banking Association – whose members De Gori noted were benefitting from the confusion – acknowledged there was “merit in giving further consideration to different and more appropriate terminology and labels”.
A subsequent PJC inquiry into lifting advice standards (which led to FASEA’s formation) also canvassed the issue, eventually recommending that ‘general advice’ be replaced with the term ‘product sales information’ to “better reflect the nature of that information”.
ASIC has also highlighted the issue, with its March 2019 ‘Mind the Gap’ report showing only 53 per cent of people could correctly identify general advice.
“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,” ASIC deputy chair Karen Chester said.
At the time Chester called the report “timely”, given the government was preparing to roll out changes from the Royal Commission. Hayne, however, didn’t make any recommendations on the issue, and policymakers have been largely silent on it since.
Even ASIC itself appears to have moved on. In its latest consultation paper (CP 332) into access to affordable advice, the regulator focussed instead on suggestions for alternatives to the term ‘scaled advice’.
Education over labels
Not all stakeholders agree that there is an issue with the terminology around the word ‘advice’, with the Association of Financial Advisers head of policy Phil Anderson saying they’re “not arguing for that one”.
Intra-fund advice still requires a statement of advice and consideration of best interest duty obligations, Anderson says, so the ‘advice’ moniker is appropriate. Same goes for robo advice, he adds.
“Any time you’re making a recommendation with respect to a financial product you’re providing financial advice and if you’re taking the client’s personal circumstances into account you need to abide by the obligations,” he says.
General advice can be problematic, he acknowledges, citing the 2020 court case between ASIC and Westpac which saw the bank found guilty of letting unlicensed staff cross the line into personal advice.
Yet the issue is more about financial education than simple labels, Anderson says.
“You wouldn’t discount changing the labels but it’s about consumers really being aware of and understanding the difference between general and personal advice.”
If it takes the High Court to work out the difference between general and personal advice, I would say there is a problem with the terminology.
Agree that Robo and Intrafund advice are within the personal advice realm but general advice is, at its purest, information only. Presenting information so named may invite the ‘consumer’ to ask for advice so the “advice” need is identified. Not this vague perception mismatch where the receiver of the information may think they have received advice.
The OED defines ‘advice’ as “Opinion given or offered as to action; counsel. specifically medical or legal counsel” – that allows for both the AFA and FPA approach.
More interesting is the definition for adviser: “One who advises or counsels” and that reflects my experience – when people use the word ‘advice’ they usually include the flavour of counselling in the meaning of the word advice. In this case those giving product advice or robo advice are clearly not advisers while intra-fund advice would fit, despite its massively limited scope.