Risk advice only suited for general advice

General advice licenses are best suited for life/risk advisers and do not work for investment or superannuation related advisers as that requires too much personal information, according to an advisory group.

General advice licenses could become an attractive option for advisers who did not want to or were struggling to pass the Financial Adviser Standards and Ethics Authority (FASEA) exam, or if they did not want to complete the education requirements.

Australian Advisory principal, Mark Dorling, said general advice licenses only worked for risk advice.

“General advice is only risk, it’s impossible to do superannuation under general advice because you need too much personal information,” Dorling said.

“We do just risk: life, income protection, critical illness, trauma, TPD [total and permanent disability], and business expense.

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“[With investment] you need too much information, you need to give them a risk profile, what asset allocation they need, so you’re just going into too much personal information and you have to ascertain their tolerance to risk which you can’t do with general advice.”

In the context of insurance, general advice allowed advisers to inform clients on the different levels of advice.

General advice meant not taking into consideration personal circumstances or making a recommendation – it was up to the client to make their own informed decision.

There was still a requirement to do a fact find, keep file notes and a duty to disclose it was general advice, but no statements of advice (SoAs) were required.

“This is where it is ideal for those old risk writers that have been forced out of the industry at the moment,” Dorling said.

If a client did require personal advice, they could still be referred to a full advice adviser.

“We refer it to someone inhouse that does personal advice… the full advice adviser would do a full SoA and treat it as a personal advice client,” Dorling said.

RG 244 still relevant

Regulatory Guide 244 (RG 244) from the Australian Securities and Investments Commission (ASIC) outlined what was permitted within general advice.

A spokesperson from ASIC said: “RG 244 sets out ASIC guidance on giving factual information, general advice and personal advice (including the differences between them) and the legislative framework relating to what constitutes general advice and personal advice under the Corporations Act – this has not changed since it was last updated”.

RG 244 currently stated: “As a general rule, if you carry on a business in Australia of giving general advice to clients that is a financial service, you must hold an AFS [Australian financial services] licence with an authorisation to give general advice, or be an authorised representative of such a licensee, unless an exemption applies.

“If you are licensed to give general advice, you must warn the client that:

1. The advice has been prepared without taking into account their objectives, financial situation or needs;
2. The client should, therefore, consider the appropriateness of the advice, in light of their own objectives, financial situation or needs, before acting on the advice; and
3. If the advice relates to the acquisition, or possible acquisition, of a particular financial product, the client should obtain a product disclosure statement (PDS) (if required) relating to the product and consider the PDS before making any decision about whether to acquire the product.”