In a recent case on appeal in the Full Federal Court, ASIC won their case against financial services organisations providing personal advice to customers about consolidating superannuation accounts. The Full Court found the providers were in breach of their Australian financial services licenses, as they had licenses to provide general advice but not personal advice in marketing / telephone campaigns.
The Full Court also found that by providing personal advice to their customers, these organisations failed to comply with other financial services laws in the Corporations Act, including the ‘best interests duty’.
The decision provides additional clarity and certainty concerning the difference between general and personal advice for consumers and financial services providers and is a timely reminder not to provide personal advice to customers in any context unless you are specifically licensed to do so.
In this case, the judgement stated, “the decision to consolidate superannuation funds into one chosen fund is not a decision suitable for marketing or general advice. It is a decision that requires attention to the personal circumstances of a customer and the features of the multiple funds held by the customer.”
In Australia, an individual or entity must be licensed by ASIC to provide financial product advice.
Financial product advice means a recommendation or a statement of opinion, or a report of either of those things, that:
- is intended to influence a person or persons in making a decision in relation to a particular financial product or class of financial products, or
- could reasonably be regarded as being intended to have such an influence.
There are two types of financial product advice: personal advice and general advice.
Personal advice is financial product advice that is given or directed to a person (including by electronic means) in circumstances where:
- the provider of the advice has considered one or more of the person’s objectives, financial situation and needs, or
- a reasonable person might expect the provider to have considered one or more of those matters.
General advice is financial product advice that is not personal advice.
When providing financial product advice there are a number of obligations that must be met by the provider, including disclosure obligations – that is, providing certain details and information to the client about the relevant product/s and the license under which the person is operating, a duty to act in the best interest of the client, to provide advice that is appropriate, and many others. The obligations are more substantial when providing personal advice compared to general advice, which reflects the personalisation of the advice (or expected personalisation) and likelihood of reliance on that advice by the client.
There is no requirement to be licensed in order to provide factual information.
Factual information is objectively ascertainable information, the truth or accuracy of which cannot reasonably be questioned.
Financial product advice generally involves a qualitative judgement about, or an evaluation, assessment or comparison of some or all of the features of a financial product – including an insurance or superannuation product. If a communication is a recommendation or a statement of opinion that is intended to or can reasonably be regarded as being intended to influence a client in making a decision about a particular financial product or class of product (or an interest in either of these), it is financial product advice.
If an individual or entity is not licensed by ASIC to provide financial product advice, it is important they do not provide anything other than factual information to clients and instead refer them to obtain their own advice from a qualified provider such as a licensed financial adviser, tax accountant, lawyer or other professional.