ASIC’s recent media release, published on 4 May 2021 entitled ‘Findings from consumer research on ‘general advice’ label’ offers an interesting reminder for stakeholders in the financial services industries.
What is ‘general advice’ in a financial context?
Essentially, ‘general advice’ is financial product advice that is prepared without considering a consumer’s personal circumstances. These personal circumstances could include their objectives, financial situation and needs.
Readers may recall the Treasury’s Financial System Inquiry Final Report and the Productivity Commission’s inquiry report into Competition in the Australian Financial System. These reports recommended that general advice should be re-labelled so that consumers are able to clearly distinguish between personal and general advice. The reasoning behind the recommendation was that personal advice and general advice are subject to different legal obligations. An example which illustrates this is that providers of general advice do not have an obligation to act in their client’s best interests.
In response to these reports ASIC commissioned Newgate Communications Pty Ltd (Newgate) to identify and test alternatives to the general advice label. The research was carried out during the first 5 months of 2020 and utilised a combination of both qualitative and quantitative methods such as group discussions and hypothetical testing.
What were the findings?
Newgate presented the following findings:
There was no evidence (despite the recommendations from the Treasury’s Financial System Inquiry Final Report and the Productivity Commission’s inquiry report into Competition in the Australian Financial System) that a change in the label will change consumers’ understanding of general advice.
No alternative labels to ‘general advice’ were found to be a significantly better fit with the description of general advice. This finding stemmed from the quantitative survey, during which participants were shown a description of general advice and were asked to rate three randomly selected labels from the shortlist. This rating was in terms of their fit with the description of general advice. However, none of these alternative labels enhanced the participants understanding of the nature and limitations of general advice.
The circumstances in which general advice is received could significantly increase the risk of consumer misunderstanding of the nature of the advice given, leading them to believe it was personal advice. When the hypothetical interaction was personal in nature, for example if:
the advice was given one on one (in person or by phone);
they had some prior relationship with the person giving the advice;
they had asked a direct question about what would be best for them; and/or
they had provided some initial contextualising information (e.g. personal details).
In these situations, there was an increase in participants’ perceptions that the general advice was tailored to their personal circumstances.
Consumers felt it was important to seek further information regardless of what label was used to convey general advice.
There are other ways advice providers can clarify what is meant by ‘general advice’. These other means were:
contrasting the descriptions of general and personal advice; and
including an explicit portion in the general advice warning that the provider of general advice is not required to act in the consumers’ best interests.
ASIC has elected not to make recommendations to Government in relation to changing the label of general advice at this stage.
Considerations for Australian Financial Services licencees
In its release ASIC also refers readers to Westpac Securities Administration Ltd & Anor v ASIC  HCA 3 which was delivered by the High Court in February this year. The decision clarified that it may be found that personal advice, not general advice was given, depending on the circumstances such as:
the nature of the advice provider’s business and their expertise in the subject of the advice;
the advice provider presenting a recommendation as a ‘no brainer’ having regard to the expected benefits to the consumer from that decision; and
the advice provider identifying the advice recipient’s financial objectives and circumstances.
Further, it may be insufficient for the recipient to understand that they were receiving general advice if the provider simply provides a warning once at the beginning of a conversation. A general advice warning must be assessed in light of all the circumstances.