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General or personal? Consumers confused over advice

Many consumers confuse general and personal advice, exposing them to the risk of poor financial decisions, according to new research.

Today’s report from the Australian Securities and Investments Commission (ASIC) – Financial advice: Mind the gap – uses independent research to highlight significant gaps in consumer knowledge.

Only 53% of those surveyed correctly identified “general” advice, and even when provided with the general advice warning, almost 40% wrongly believed the adviser had an obligation to take their personal circumstances into account.

“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 Chairman Karen Chester said.

The report focuses on issues in the financial advice and life insurance sectors, but concerns over general and personal advice – and whether consumers understand the difference – have previously been highlighted by the general insurance industry.

“General advice rules often diminish the usefulness of information provided to consumers,” Insurance Council of Australia spokesman Campbell Fuller told last year.

ASIC says millions of Australians seek financial advice, and it is critical they understand whether that advice is personal and tailored to their circumstances, and whether the adviser has a legal obligation to act in their interest.

The report highlights that Future of Financial Advice (FOFA) protections only apply when personal advice is provided.

These include obligations for advisers to act in their client’s best interests, to provide advice that is appropriate to their client’s personal circumstances and to prioritise their client’s interests.

These obligations do not apply when general advice is provided.

“The survey also revealed that the responsibilities of financial advisers, when providing general advice, is not well understood,” Ms Chester said.

“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.

“While 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.”

ASIC says the report is the first stage of a broader research project.

Further studies will get underway later this year to identify “a more appropriate label” for general advice and consumer-test the effectiveness of different versions of the general advice warning.

Click here to read ASIC’s report.