Findings from consumer research on ‘general advice’ label
Independent consumer research has found that changing the ‘general advice’ label alone is unlikely to prevent confusion about the nature of general advice. In light of these findings, ASIC will not be making recommendations to the Government in relation to changing the label of general advice.
‘General advice’ is financial product advice that is prepared without considering a consumer’s personal circumstances such as their objectives, financial situation and needs.
ASIC commissioned the consumer research in response to the Financial System Inquiry Final Report and the Productivity Commission Inquiry Report into Competition in the Australian Financial System. The reports recommended that general advice should be re-labelled to ensure that consumers are able to clearly distinguish between personal advice and general advice. This is important because general advice does not come with the same legal obligations as personal advice. For example, providers of general advice are not obliged to act in the best interests of their client.
The research found no evidence to suggest that changing the general advice label, including adding the word ‘only’ to the general advice label, will have any measurable effect on consumers’ perceptions about the nature of the advice given. This includes perceptions about the personalisation of the advice, understanding of the advice provider’s obligations and the importance of seeking further information.
Between January and May 2020, Newgate Communications Pty Ltd (Newgate) undertook qualitative and quantitative research to identify and hypothetically test possible alternatives to the general advice label.
The qualitative phase comprised of in-depth interviews and group discussions with 66 research participants. For this part of the research, Newgate obtained alternative label suggestions from the participants and explored a wide range of existing ideas previously collected from ASIC’s consultation with industry.
For the quantitative phase, Newgate then narrowed down the list of possible alternative labels, including a no-label option, from this feedback to create a shortlist. The 15 shortlisted options were hypothetically tested in a survey completed by a nationally representative sample of 3,642 participants.
Finding 1: There was no evidence that a change in the label will change consumers’ understanding of general advice.
The alternative labels that were hypothetically tested did not make any measurable difference to consumers’ understanding of general advice and many participants in the research did not notice the label. In fact, the survey results showed no effect on consumers’ understanding of general advice when a label was used compared to when no label was used. The majority of participants in the qualitative research also indicated they did not notice the label.
Finding 2: No alternative labels to ‘general advice’ were found to be a significantly better fit with the description of general advice.
In the quantitative survey, participants were shown a description of general advice, and were asked to rate three randomly selected labels from the shortlist in terms of their fit with the description of general advice. None of these alternative labels enhanced consumer understanding of the nature and limitations of general advice.
Finding 3: The circumstances in which general advice is received could significantly increase the risk of consumer misunderstanding of the nature of the advice given.
Participants’ perceptions that the general advice was tailored to their personal circumstances was increased when the hypothetical interaction was personal in nature, such as when:
- the advice was given one on one (in person or by phone);
- they had some prior relationship with the person giving the advice;
- they had asked a direct question about what would be best for them; and/or
- they had provided some initial contextualising information (e.g. personal details).
Finding 4: Consumers felt it was important to seek further information regardless of what label was used to convey general advice.
Around 8 in 10 of the survey participants felt it was important to seek further information regardless of what label was used.
Finding 5: There are other ways advice providers can clarify what is meant by ‘general advice’.
The research also identified potential means of clarifying general advice to consumers such as by contrasting the descriptions of general and personal advice, and explicitly stating in the general advice warning that the provider of general advice is not required to act in the consumers’ best interests.
On 21 April 2020, the Minister for Superannuation, Financial Services and the Digital Economy, Jane Hume, announced that the Government will conduct the Quality of Advice Review next year to consider the full breadth of issues impacting on both quality and affordability of all forms of financial advice. ASIC has provided the findings from this consumer research to Treasury to assist with the broad review.
Information for licensees
In February 2021, the High Court handed down its decision in Westpac Securities Administration Ltd & Anor v ASIC  HCA 3. The decision provides guidance on circumstances that may lead to a conclusion that personal advice was given instead of general advice (refer 21-013MR). These circumstances included the nature of the advice provider’s business and their expertise in the subject of the advice, the advice provider presenting a recommendation as a ‘no brainer’ having regard to the expected benefits to the consumer from that decision, and the advice provider identifying the advice recipient’s financial objectives and circumstances.
The decision also clarified that the general advice warning must be assessed in light of all the circumstances, and simply providing the warning once at the beginning of a conversation may not be enough for the recipient to understand that they were receiving general advice. Australian financial services (AFS) licensees should review this decision and the research findings above and apply them in practice to ensure compliance with the relevant laws.
ASIC also recommends AFS licensees familiarise themselves with Regulatory Guide 244 Giving information, general advice and scaled advice, which provides guidance for AFS licensees, authorised representatives and advice providers on the differences between giving factual information, general advice and personal advice.