Is advice really advice without a product recommendation?
A near two decade-old legislative drafting decision needs to be corrected before product can be properly and permanently separated from advice, according to former dealer group chief executive and current adviser group board member, Paul Harding-Davis.
Harding-Davis, who was part of the industry response to the Financial Services Reform Act process said that the problem lies in the fact that, at law, there is no financial advice unless it relates to the recommendation/sale of a product,
“To put in bluntly - there is no such thing at law as financial advice unless there is a recommendation (sale) of a product,” he said. “It’s been around for so long that few people seem to understand what is ‘advice’ in terms of the Corporations Act.”
Harding-Davis cited RG 36.19 which defined financial product advice as:
“A recommendation or a statement of opinion, or a report of either of those things, constitutes financial product advice under s766B if:
- it is intended to influence a person or persons in making a decision about a particular financial product or class of financial products, or an interest in a particular financial product or class of financial products, or could reasonably be regarded as being intended to have such an influence;”
“Advice, as is clear, is actually defined as Financial Product Advice, and requires the recommendation (selling?) of a financial product,” he said. “As an aside, it is worth noting that this only relates to financial products. A Gold Ingot, or a specific residential property come under the Real Assets definition and are not covered by this definition.”
“Given that the product recommendation is usually the least value add of the whole 12-13 step financial advice process, it is arguable that the most valuable parts of financial advice do not even require authorisation or registration,” Harding-Davis said.
He said that rather than commentators and others being surprised that advice is intertwined with a product, they should be shocked when it is not given the law.
Harding-Davis said that, in these circumstances, he believed it would be difficult to fix the underlying problems with advice without actually fixing the underlying regulations.
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