General advice or personal advice: where the law draws the line

Three layers, from the ground up

ASIC’s Regulatory Guide 244 separates three things a client might be given.

1. Factual information. ASIC defines it as information that is objectively ascertainable and whose truth cannot reasonably be questioned. No AFS licence is needed to give it.
2. Financial product advice. Under section 766B of the Corporations Act, this is a recommendation or statement of opinion (or a report of one) that is meant to influence a decision about a financial product or a class of them, or could reasonably be regarded as meant to. ASIC adds that advice generally involves a qualitative judgement about a product’s features, or an evaluation, assessment or comparison of them.
3. Personal advice is financial product advice that meets the test in section 766B(3), set out below. General advice is simply financial product advice that is not personal advice, under section 766B(4).

Facts can still tip into advice. ASIC says factual information may be advice if it is presented in a way meant to suggest, or that can reasonably suggest, a recommendation about what the client should do.

The test for personal advice has two parts

RG 244 puts the test in two steps. First, is it financial product advice at all? Second, has the provider considered the client’s relevant circumstances, or might a reasonable person expect them to have done so?

Knowing your details is not the test

ASIC is plain that the test is not whether a provider merely holds information about you. A provider can use what it knows to pick general advice that is relevant to you. But if it actually considers your circumstances when it prepares the advice, the advice is personal, and RG 244 says a general advice warning cannot undo that.

The general advice warning

Section 949A(2) of the Corporations Act requires a licensee giving general advice to warn the client of three things, which RG 244 sets out. In this guide’s words:

1. the advice was prepared without taking account of the client’s objectives, financial situation or needs;
2. so the client should think about whether it is appropriate for them, in light of those things, before acting on it;
3. if it is about getting a particular financial product, the client should obtain the Product Disclosure Statement, where one is required, and consider it before deciding.

The warning does not have to use the Act’s exact words, but it must be given at the same time, and by the same means, as the advice. Moneysmart puts the same warning from the reader’s side: you are told the advice is general, prompted to consider whether it suits you, and in some cases given a Product Disclosure Statement.

When the business selling the product gives the advice

A financial product issuer does not need an AFS licence to give general advice about its own products, under a regulation RG 244 cites as reg 7.1.33H. The exemption has conditions. The issuer must tell you it is not licensed to give general advice about the product, recommend that you get and read the PDS where appropriate, and, if the advice is about the offer, issue or sale of a product, tell you whether a cooling-off regime applies.

What personal advice brings with it

Division 2 of Part 7.7A of the Corporations Act puts four obligations on the person giving personal advice to a retail client: act in the client’s best interests, give appropriate advice, warn the client if the advice rests on incomplete or inaccurate information, and put the client’s interests first.

Section 961B(2) sets out a safe harbour: a provider who can show they took its steps is treated as having met the best interests duty. As ASIC’s Regulatory Guide 175 lists them, summarised here, the provider must:

1. identify the objectives, financial situation and needs the client disclosed in their instructions;
2. identify what the client is asking about, and which of their circumstances would reasonably be relevant to advice on it;
3. make reasonable inquiries where it is reasonably apparent that information about those circumstances is incomplete or inaccurate;
4. assess whether they have the expertise to advise on the subject, and decline if they do not;
5. where recommending a product would be reasonable, investigate the products that might meet the client’s relevant objectives and needs, and assess what that investigation finds;
6. base every judgement in the advice on the client’s relevant circumstances;
7. take any other step that would reasonably be seen as in the client’s best interests at the time.

RG 175 also says the obligation to give a Statement of Advice applies to most personal advice but not to general advice. What that document must hold is drawn on sheet 04, fees and statements of advice.

Scaled advice is still personal advice

Personal advice limited in scope is called scaled advice. RG 244 says the rules for scaled and comprehensive advice are identical, that scaled advice can cover one topic or several, and that it is not lesser quality advice.

Telling which one you are getting

Moneysmart gives two signs that what you are hearing may be general advice: you were not asked questions about your financial situation, needs and objectives, and the person speaks about a product in general terms rather than tailoring it to you. On the provider’s side, ASIC calls it good practice to make sure a client understands at the outset that they are getting general advice and not personal advice.

Whoever gives it, personal advice on investments, super and life insurance comes from someone who must be on the financial advisers register, which sheet 03 reads field by field.