Financial Advice

 The definitions of Advice under the Financial Services Reform Act (FSRA)

What is a "Financial Service?"[1]

Australian Financial Services (AFS) licensees and/or advisers provide a ‘financial service’ to a client if they (amongst other things):

  1. provide advice regarding a financial product, or
  2. deal in a financial product i.e. arrange for its issue, variation or disposal.


Financial Product Advice 

A recommendation or a statement of opinion, or a report of either of those things, constitutes financial product advice if it 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 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.[2]

The overall impression and the circumstances are just as important as what is actually said. If the recipient has the impression that a recommendation is being made or what is said could reasonably be regarded as influencing them to buy a particular product, advice will have been provided.[3]

Financial product advice will generally involve a qualitative judgement about an evaluation, assessment or comparison of, some or all of the features of one or more financial products.

Whether the opinion or recommendation is intended to, or could reasonably be regarded as, influencing a client’s decision, depends on the circumstances. To determine whether the communication constitutes financial product advice the overall impression created by a communication and all the surrounding circumstances in which it is provided are taken into account.

All due care, diligence and competence should be applied in providing financial product advice as it is important that the client should not be misled or deceived.

Any conflicts of interest that may affect the advice provided must be disclosed, including commissions to be received if a product sale is the result.


Dealing

Dealing in a financial product means:

  •  applying for
  •  acquiring,
  •  issuing
  •  varying or
  • disposing of a financial product.

In relation to securities or managed investment interests, dealing also includes underwriting the securities or interests.[4]

Arranging for a person to do any of the above is also dealing. 

General Advice Vs Personal Advice

General Advice and Personal Advice are forms of financial product advice. It is important to be clear on the differences between 'General Advice' and 'Personal Advice'

General Advice is a process through which a Representative assists the client to make informed choices by providing factual information or very limited product recommendations only. General Advice is only provided where the client’s needs or circumstances are not considered by the Representative and is typically limited to information given in response to a specific query initiated by a client and the client does not expect you to consider their circumstances.

Factual information may be tailored to be more relevant (i.e. sending a brochure on retirement income streams to an audience of over 55yos). Using personal information to tailor the information presented so that only relevant information is provided is fine. However, if you take into consideration an individual client’s objectives, financial circumstances or needs you will be giving Personal Advice regardless of providing a General Advice warning.

If at any point in the client interaction you become aware of a client’s needs or circumstances or the client could reasonably have expected you to have considered their objectives, financial circumstances or needs, you would essentially be in personal advice territory.

Therefore General Advice businesses need documented processes and scripts for their advisers to ensure they consistently remain within the realms of General Advice and are able to demonstrate that they complied with the advice provisions as set out in the Corporations Act 2001 (Cth).

General Advice

General Advice is a process through which a Representative assists the client to make informed choices by providing factual information or very limited product recommendations only. General Advice is only provided where the client’s needs or circumstances are not considered by the Representative and is typically limited to information given in response to a specific query initiated by a client and the client does not expect you to consider their circumstances.

Factual information may be tailored to be more relevant (i.e. sending a brochure on retirement income streams to an audience of over 55yos). Using personal information to tailor the information presented so that only relevant information is provided is fine. However, if you take into consideration an individual client’s objectives, financial circumstances or needs you will be giving Personal Advice regardless of providing a General Advice warning.

If at any point in the client interaction you become aware of a client’s needs or circumstances or the client could reasonably have expected you to have considered their objectives, financial circumstances or needs, you would essentially be in personal advice territory.

Therefore General Advice businesses need documented processes and scripts for their advisers to ensure they consistently remain within the realms of General Advice and are able to demonstrate that they complied with the advice provisions as set out in the Corporations Act 2001 (Cth).

Personal Advice

Personal Advice is all other advice that is a recommendation, influence or statement of opinion or a perception of these, where you have considered one or more of the client’s objectives, financial circumstances or needs or where the client could reasonably have expected you to have considered their objectives, financial circumstances or needs. Personal advice is intended to influence or create an interest in a particular course of action.

Personal Advice could be given verbally, in writing, through third parties and possibly in a group/ seminar. Personal advice can be deemed to have been provided even if you provide factual information that could influence a client into a course of action if the client believes their objectives, financial circumstances or needs were taken into account

The provision of pure factual information in a way that was not intended to influence the client is not considered advice (No Advice). Purely facilitating the purchase of a product as instructed by a client is also not advice (No Advice) and is considered Dealing.

What's not advice?

A number of the information services that financial advice businesses typically provide are not categorised as ‘advice’ by the Corporations Act. These include providing clients with the following.

1. Factual Information [5]

Factual information is information which does not contain an opinion or recommendation of any kind (actual or implied). The communication would contain only objectively ascertainable information, whose truth or accuracy cannot reasonably be questioned.
When providing factual information, advisers should avoid giving the impression that they are providing advice. Including a prominent disclaimer to the effect that the person who receives the information should not regard it as advice and should consider obtaining independent advice before making any decision to purchase a product may assist in making sure that consumers are not misled or confused about the purpose of the communication. However, a disclaimer will not, of itself, determine whether a communication constitutes financial product advice.[6]

Providing information about the following will not, of itself, constitute financial product advice:

  • the cost or likely cost of a financial product in response to a request, [7] or
  • the cost of or return on a product in response to a request, in circumstances where the request could have also been complied with (but wasn’t) by telling the enquirer the equivalent information about one or more other financial products.[8]

2. Disclosure Documents That Do Not Contain Personal Advice [9]

Factual information e.g. about a product and even General Advice (i.e. an opinion or recommendation about a product that is not Personal Advice) can be included in exempt documents or statements. However, it is advisable to include a disclaimer to the effect that the document is not intended to provide Personal Advice.

Exempt documents include:

  • PDS
  • FSGs
  • Supplementary FSGs, or 
  • other infomration required to be provided when the documents mentioned above are either not required or, because time is critical, you may delay providing them.[10]