Yahoo Finance ‘General’ or ‘personal’ financial advice: What’s the difference?
Many Australians don’t know the difference between ‘general’ financial advice and ‘personal’ financial advice – and it’s become a big problem.
According to recent research by the corporate watchdog, ASIC, Aussies generally don’t know that there are two different kinds of advice to begin with.
On top of that, even if they know there are two types of advice, they often aren’t clear about the responsibilities that financial advisers have to them and the different levels of protection.
So what’s the difference between the two?
Personal advice takes into account an individual’s personal circumstances, like their financial objectives, situation and needs.
Meanwhile, general advice isn’t tailored to your personal circumstances at all, and isn’t expected to be.
Why does it matter?
Depending on the type of financial advice you’re given, the level of protection and care you’re afforded is different.
When advisers are offering personal advice, they’re obliged to act in the customer’s best interests. It means that the consumer’s interest should be a priority at all times, and the adviser must provide a Statement of Advice that lays out the advice and the basis of the advice.
However, with general advice, minimal consumer protection is afforded. What’s called a ‘general advice warning’ is given to say that the advice doesn’t take into account the customer’s personal circumstances, and the provider of general advice isn’t required to act in the consumer’s best interest.
Ultimately, confusing the two means you could well be making the wrong decisions when you purchase a financial product or make financial decisions.
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Here’s how you could be at risk
There are a number of reasons why misunderstanding general and personal advice could sting. For one, consumers might mistake general advice for personal advice, and base important financial decisions off it – but the advice might not be appropriate.
It also means an increased risk of consumers buying financial products that aren’t suited to their needs, or making decisions to switch financial institutions that aren’t appropriate for them.
Financial advice under the microscope
The banking royal commission has brought to light how misled consumer can be if they don’t understand or are misinformed about their rights.
For this reason, advisers must disclose to consumers when they’re only giving “general advice”. But ASIC’s research found that this warning isn’t necessarily effective: in an online survey where participants were asked to read a general advice scenario, more than a third (38 per cent) of people still thought the adviser had a responsibility to consider their personal circumstances.
How can I protect myself?
In “most” situations, whether you’re dealing with a bank, an insurance company or your superannuation fund, it’s important to understand when you’re receiving “general” financial advice, non-aligned financial adviser James Gerrard told Yahoo Finance – even if they come across as very friendly and attentive.
So financial institutions will want to sell you products – without going through the more comprehensive process of gathering your personal information and creating a statement of advice for you – so they have to tread carefully not to push their advice into ‘personal’ territory.
“By this, I mean that they should not influence your decision making process by what they say,” Gerrard said.
“They can provide you with factual information that points out the benefits of going a certain way, but they can’t go as far as to say ‘I think that you should do this’.”
It doesn’t even have to be an explicit recommendation for the line to be crossed, either.
“The regulations state if the company has made a statement of opinion that is intended to, or can reasonably be regarded as being intended to influence, then it crosses the line from general to personal financial advice,” Gerrard said.
What to watch out for
Gerrard flagged the following statements as something to be wary of:
“I can only give you general advice, however if I were in your shoes, I’d do this”
“My mother/friend/uncle in a similar position to you has done it this way”
Statements like this would likely be crossing the line and could influence you to make a decision that is more in the company’s interest than yours.
“A company can give you factual information about their financial products, however cannot give you a recommendation or statement opinion intended to influence your decision,” Gerrard said.
“If they do, then you have cause to make a complaint if the outcome is not what you expected.”
Questions to ask
Keep the financial representative on their toes and make it clear they can’t pull the wool over your eyes by asking the following questions:
“Is this phone call being recorded? Can I request a copy for my records?”
“Can you confirm your statements in writing?” (Ensure what they say verbally matches what they write, and that what they write covers everything they said)
“Can you confirm that this is general advice only?”
“Can you explain to me the difference between personal and general advice?”
“Can you tell me your opinion about what you think I should do?” (The answer should be a definitive no, according to Gerrard)
“Am I able to get personal financial advice from you about this?”
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