Inquiry into the provisions of the Corporations
Amendment (Financial Advice) Bill 2014
Referral and conduct of the inquiry
On 5 March 2015, pursuant to the Selection of Bills Committee's report, the
Senate referred the Corporations Amendment (Financial Advice) Bill 2014 (the
bill) to the Economics Legislation Committee for inquiry and report by
11 August 2015.
The proposed legislation was a private senator's bill introduced into the
Senate on 2 September 2014 by Senator Peter Whish-Wilson.
The main reason for supporting the referral of this legislation to a
parliamentary committee was because of the 'successive reports of misconduct in
financial advice sector related, in part, to the provision of general advice'
and because it was 'not yet clear if FOFA [the Future of Financial Advice
legislation]—a relatively new piece of legislation—is adequately addressing
issues related to general advice'.
The committee decided on 5 March 2015 that the Senate Economics
References Committee's inquiry into the Scrutiny of Financial Advice would be
better placed to examine the matters raised by this bill. The references
committee agreed with this view.
The committee advertised the inquiry on its website but did not call for
submissions or hold public hearings, given the references committee's
concurrence that it would be ideally placed to examine issues raised by the
bill as part of its inquiry into the Scrutiny of Financial Advice.
Scope and structure of this report
To provide the context for the provisions of the bill, the committee
first provides an overview of the current regulation of factual information,
general advice and personal advice. The committee then considers the purpose of
the bill and provides an overview of the relevant recommendations of other recent
inquiries regarding the labelling and regulation of general advice.
Background to the bill
In March 2002, the Financial Services Reform Act 2001 introduced
a new regulatory regime for financial services. Since the enactment of this
legislation, an individual or business providing financial product advice is
taken to have provided a financial service and has been required to hold an
Australian Financial Services Licence as well as satisfy a number of conduct
and disclosure obligations.
Subsection 766B(1) of the Corporations Act 2001 (Corporations
Act) provides the following definition of 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 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.
Financial product advice is divided into two types: personal advice and general
Personal advice is given in circumstances where the provider has, or
should have, considered the person's objectives, financial situation and needs.
Only one aspect of the person's relevant circumstances needs to have been
considered for the advice to be personal advice.
Examples of advice that is likely to be personal advice include strategic
investment advice and advice on retirement income planning.
General advice is advice that is not personal advice, that is a
recommendation or opinion that does not consider a person's relevant
Examples of advice that is likely to be general advice include the advice
provided at investment seminars and the advice in marketing brochures advertising
a particular financial product or product range. ASIC makes the following distinction:
General advice about a financial product will not be personal
advice if you clarify with the client at the outset that you are giving general
advice, and you do not, in fact, take into account the client's objectives,
financial situation or needs.
Providers are required to warn clients that general advice does not take
into account a person's objectives, financial situation or needs; this warning
is known as the 'general advice warning'.
Communication that consists of only factual information is not financial
product advice and, as such, is not regulated as a financial service under the
Corporations Act. A person providing factual information is not required to
hold an Australian Financial Services Licence or to meet the conduct and
disclosure obligations required when providing personal advice or general
In its regulatory guidance, ASIC defines factual information as 'objectively
ascertainable information whose truth or accuracy cannot be reasonably
Factual information can include information about the rights and obligations of
people under relevant legislation or the cost of a financial product.
A person can provide factual information to an individual even if that person
knows personal information about the individual.
Factual information may, however, be financial product advice if it is
presented in a way that is 'intended to, or can reasonably suggest or imply an
intention to, make a recommendation about what a client should do'.
For example, in the circumstances where a client with $10,000 to deposit
went into a bank branch and asked a branch teller about the different interest
rates on savings products—if the teller simply provided interest rates on the
different products this would constitute the provision of factual information.
However, if the teller added that there was an 'attractive special rate' available
on term deposits for a six‑month period this would likely constitute
financial product advice because it is a matter of opinion and could reasonably
be regarded as intending to influence the client to choose the term deposit
The Future of Financial Advice (FOFA) reforms built on the distinction between
the provision of personal advice and the provision of general advice when implementing
the consumer protections that apply to retail clients receiving financial product
advice. The objectives of the FOFA reforms were:
...to improve the quality of financial advice while building
trust and confidence in the financial advice industry through enhanced
standards which align the interests of the adviser with the client and reduce
conflicts of interest.
The FOFA amendments commenced, on an optional basis, from 1 July 2012,
and became compulsory from 1 July 2013.
Under the FOFA reforms in Part 7.7A of the Corporations Act, personal
advice provided to retail clients is generally subject to higher consumer
protections than general advice provided to retail clients. For example, the
ban on conflicted remuneration, under Division 4 of Part 7.7A, applies to both
general and personal advice given to retail clients but the best interests duty
obligations, under Division 2 of Part 7.7A, only apply to retail clients who
receive personal advice.
Purpose of the bill
The purpose of the bill is to ensure that the term 'advice' can only be
used in reference to financial product advice that takes into account the personal
circumstances of the consumer, that is personal advice.
The Explanatory Memorandum of the bill states that this change 'will
help ensure personal advice is differentiated from information that is provided
to sell general financial products with little or no consideration of an
individual's financial situation or needs'.
If enacted, the bill would amend the Corporations Act by:
substituting the term 'information' for the term 'advice' in the
phrase 'general advice'; that is, if enacted, 'general advice' would be termed
'general information'; and
requiring the existing 'general advice warning' to clients under
section 949A of the Corporations Act—that general information does not take
into account of the client's objectives, financial situation or needs—to also
include a warning that the general information is not advice.
The Explanatory Memorandum states that the proposed changes to the
Corporations Act raise no human rights or freedom issues.
The Senate Standing Committee for the Scrutiny of Bills had no comments
in relation to the bill.
Recommendations made by previous inquiries
Questions have been raised as part of other recent inquiries—notably the
committee's inquiry into the Corporations Amendment (Streamlining of Future
Financial Advice) Bill 2014 and the Financial System Inquiry—about whether the
distinction between general advice and personal advice is well understood by
In particular, questions have been raised about whether the term
'general advice' best conveys the nature of, and obligations associated with,
the provision of general advice.
Recommendations of the committee's
inquiry into the Corporations Amendment (Streamlining of Future Financial
Advice) Bill 2014
The committee's inquiry into the Corporations Amendment (Streamlining of
Future Financial Advice) Bill 2014, which was tabled in the Senate on
16 June 2014, received submissions and testimony expressing concern
that consumers were often not cognisant of the nature of general advice. For
example, Mr Mark Rantall, CEO of the Financial Planning Association of
Australia, noted that many consumers do not appreciate that general advice does
not consider a person's relevant circumstances:
As long as the differences between general advice and
personal advice are insufficiently clear to consumers, general advice will be
perceived as a less costly form of personal advice.
Mr Alan Kirkland, CEO of CHOICE, took the view that it was unrealistic
to expect all consumers to understand the differences in the regulation of
general advice and personal advice:
We depend on consumers to work out, 'That's general advice,
so there is a lower bar and I should be much more cautious.'... It is just not
realistic to expect the consumer to understand that distinction between
personal and general advice.
Noting the concerns about the possible misuse or misunderstanding of the
term general advice, the committee recommended that the:
...government give consideration to the terminology used in the
Explanatory Memorandum and legislation (for example, section 766B), such as
information, general advice and personal advice, with a view to making the
distinction between them much sharper and more applicable in a practical sense
when it comes to allowing exemptions from conflicted remuneration.
Recommendations of the Financial
The Australian Government's Financial System Inquiry noted the
committee's recommendation about making the distinction between general advice
and personal advice clearer to consumers as part of its interim report, which
was released in July 2014.
The interim report requested submissions on the idea of renaming general
advice as 'sales' or 'product information', and mandating that the term
'advice' can only be used in relation to personal advice.
One issue with general advice is whether it is properly
labelled. Some submissions argue that some of the conduct regulated as general
advice could more accurately be described as sales information, advertising or
guidance. The aim of this relabelling would be to give consumers a clearer
indication of what is involved.
In the second round of submissions to the Financial System Inquiry, most
stakeholders agreed that the term general advice is often confusing to
consumers but there was no consensus on which term should be used instead of
general advice. The Australian Bankers' Association stated that the industry 'acknowledges
that general advice is not widely understood to be financial advice by
Some stakeholders rejected a term which included the words 'sales' or
'product' as not being an accurate characterisation of general advice. Westpac,
for example, suggested general advice be renamed 'general financial
information' and the term 'financial adviser' be restricted to those who
provide personal advice.
In contrast, the Commonwealth Bank recommended that general advice be
renamed as 'sales' or 'product information' and be removed from the regulatory
framework for financial product advice.
In other words, general advice should be treated as factual information and
provided by a person who does not hold an Australian Financial Services
Licence. The Financial System Inquiry interim report noted that there had been
a proposal in 2006 to exempt sales conduct from licensing but this was rejected
due to consumer protection concerns and there was no case to further pursue
deregulating general advice.
The final report of the Financial System Inquiry, released in November
2014, found that:
...consumers may misinterpret or excessively rely on guidance,
advertising, and promotional and sales material when it is described as
'general advice'. The use of the word 'advice' may cause consumers to believe
the information is tailored to their needs. Behavioural economics literature
and ASIC's financial literacy and consumer research suggests that terminology
affects consumer understanding and perceptions.
The Financial System Inquiry's final report recommended 'renaming
general advice' but did not suggest a particular term to replace general advice:
instead, the final report recommended a more appropriate term be chosen through
It was considered that the benefits to consumers from the clearer distinction
between general advice and personal advice outweighed the costs of consumer testing
and the costs of updating existing disclosure documents.
As at 10 August 2015, the government was still considering its response
to the Financial System Inquiry.
The committee notes that most stakeholders agree that the term general
advice is not well understood by consumers but there is no consensus on which
term should be used instead. The committee also takes note of the Financial
System Inquiry's recommendation to rename general advice and recognises that
the government has not yet announced its response to the Financial System
In light of the government's forthcoming response to the Financial
System Inquiry and the significant issues raised by the bill around the clarity
of financial services regulation for all Australians, the committee considers
that the Senate Economics References Committee's inquiry into the Scrutiny of
Financial Advice is the appropriate mechanism through which to explore the
issues raised by this bill.
The inquiry into the Scrutiny of Financial Advice is investigating the
implications of financial advice reforms, including the current level of
consumer protections and other regulatory or legislative reforms that would
prevent misconduct in the financial advice space, among other related matters.
The committee considers that the inquiry should explore how to enhance the
clarity of the terminology used in the legislation (for example, in section
766B of the Corporations Act) to improve consumer understanding and consumer
confidence in financial advice. The objectives of this bill could be included
as part of broader considerations into educating retail consumers and improving
The committee believes that the Senate Economics References
Committee is better placed to examine the matters raised by this bill, as part
of its inquiry into the Scrutiny of Financial Advice, and recommends that the
provisions of the bill be included as part of that inquiry.
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