Would changing ‘general advice’ cost millions?

Amending the term general advice and the associated requirements which would be imposed on financial services operators is likely to run into millions of dollars, according to the National Insurance Brokers Association (NIBA).

In a submission filed responding to the draft findings of the Productivity Commission draft report into Competition in the Australian Financial System, the NIBA acknowledged the shortcomings of the general advice regime, but said the full cost of compliance attaching to any changes would need to be carefully considered.

It noted that general advice was financial product advice that was given to a person without considering the individual’s objective, financial situation or needs and that this was broad and tended catch all forms of advice not tailored to an individual’s needs, including general advertisements to the public at large.

“In the case of retail clients a general advice warning must be provided when general advice is given to ensure consumers are aware of the limited nature of the advice being provided,” the submission said. “The difficulties in the current requirements of the financial product advice regime arise in relation to:

• the increased training and development required in order to provide personal

advice to customers, even if this were very basic advice which could be scripted

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for use in common scenarios;

• the increased disclosure documentation that is required when personal advice

is provided (although we note a number of carve outs apply in relation to

general insurance products);

• the blurred line between when a person is giving general advice vs personal

advice, especially when a customer has advised them of their personal situation

and expects this will be taken into account in any recommendation situation

which is not generally the case; and

• a regulatory regime which in effect constrains options to provide customers

with additional advisory tools that would assist them in making more informed

decisions (such as insurance calculators or tailored online applications that

recommend a product based on information provided by a consumer) as this

could be considered to be personal advice in some circumstances.

Further it said that the renaming of general advice to something like “general information” or “general recommendations” or “public recommendations” was not likely to solve this consumer

dilemma of understanding the nature of information being provided and may be of limited benefit other than in advertising or static content information documents.  

“A change in name of the service without any change in form or substance to the extent

of service or information provided is unlikely to provide any real consumer benefits,” the submission said. “Consumers will still think they are being provided with information or

recommendations based on their personal situation where they provide personal

information to an adviser or sales person regardless of any qualifications or warnings

given regarding the limited nature of the advice or recommendation provided.”

The submission said any changes to the regime would need to take into account any potential changes to licensing and disclosure obligations under the Corporations Act that would apply to providers, such as insurance brokers, and strike a balance to ensure that further carve outs to the licensing regime (if applicable) did not create an unfair playing field “so that, for example, only those providing personal advice need to be licensed or meet relevant training standards”.

“The full cost of compliance in amending the term general advice would need to be carefully considered and is likely to run into the millions. This would result in changes to nearly all insurance related documentation including Product Disclosure Statements and Financial Services Guides, website content and advertisements at a significant cost.”