An ASIC report has found many consumers are confusing ‘general’ and ‘personal’ advice, exposing them to greater risk of poor financial decisions.
ASIC’s Financial advice: Mind the gap report used hypothetical advice scenarios to test consumer recognition of when general and personal advice was being provided, and awareness of adviser responsibilities when being given each type of advice.
It found that only 53 per cent of those surveyed could correctly identify ‘general’ advice. Even worse, only 19 per cent of those surveyed could correctly identify ‘personal’ advice.
Further, 38 per cent incorrectly thought an adviser providing general advice had to consider their financial circumstances, while only 45 per cent thought an adviser providing personal advice had to act in their best interests.
Even when provided the general advice warning, nearly 40 per cent of those surveyed wrongly believed the adviser had an obligation to take their personal circumstances into account.
ASIC deputy chair Karen Chester said 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.
“The survey also revealed that the responsibilities of financial advisers, when providing general advice, is not well understood. Nearly 40 per cent of those surveyed were unaware that advisers were not required by law to act in their clients’ best interests,” Ms Chester said.
ASIC said it anticipates the need for financial advice to grow, reflecting an ageing population and many financial products, especially retirement products, becoming more complex.
It reports that much of the advice is likely to be general advice, and while appropriate in some circumstances, it is inevitably of limited use.
“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,” Ms Chester 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.”
In addition, Ms Chester said the consumer research is timely, and comes as the government is considering policy recommendations on financial advice from the Productivity Commission’s twin reports on Australia’s financial and superannuation systems.
“[It’s] at a time when the financial system itself undergoes much change, following the intense scrutiny of the financial services royal commission, including considering new financial advice and distribution business models,” she said.
The ASIC report is the first stage in its broader research project into consumer experiences with, and perceptions of, the financial advice sector.
ASIC said it would undertake additional research in 2019 to identify a more appropriate label for general advice and consumer-test the effectiveness of different versions of the general advice warning.
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