Is advice really advice without a product recommendation?

7 March 2019

A near two decade-old legislative drafting decision needs to be corrected before product can be properly and permanently separated from advice, according to former dealer group chief executive and current adviser group board member, Paul Harding-Davis.

Harding-Davis, who was part of the industry response to the Financial Services Reform Act process said that the problem lies in the fact that, at law, there is no financial advice unless it relates to the recommendation/sale of a product,

“To put in bluntly - there is no such thing at law as financial advice unless there is a recommendation (sale) of a product,” he said. “It’s been around for so long that few people seem to understand what is ‘advice’ in terms of the Corporations Act.”

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Harding-Davis cited RG 36.19 which defined financial product advice as:

“A recommendation or a statement of opinion, or a report of either of those things, constitutes financial product advice under s766B if:

  1. it is intended to influence a person or persons in making a decision about 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;”

“Advice, as is clear, is actually defined as Financial Product Advice, and requires the recommendation (selling?) of a financial product,” he said. “As an aside, it is worth noting that this only relates to financial products.  A Gold Ingot, or a specific residential property come under the Real Assets definition and are not covered by this definition.”

“Given that the product recommendation is usually the least value add of the whole 12-13 step financial advice process, it is arguable that the most valuable parts of financial advice do not even require authorisation or registration,” Harding-Davis said.

He said that rather than commentators and others being surprised that advice is intertwined with a product, they should be shocked when it is not given the law.

Harding-Davis said that, in these circumstances, he believed it would be difficult to fix the underlying problems with advice without actually fixing the underlying regulations.


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I think it is entirely appropriate that advice is linked to a recommendation or statement of opinion in relation to a particular financial product or class of financial products. Classification of all and any potential advice that relates to financial matters, including physical property ownership, budgeting, debt management and government assistance, would only serve to extend the commercial reach of the financial services industry. ASIC and the ACCC already have powers to deal with reckless or negligent actors under consumer law. We must not forget that the problem of bad advice appears closely linked to the areas and licensed advisors/representatives already covered by existing financial services law. The high cost of financial product advice has made it largely out of the reach of those who need it most — a lack of enforcement of current regulations and self-interested service providers appear to be the root causes.

Can any lawyers out there confirm if the following is correct?

- "Advice" only requires an AFSL (and SOA) if it contains a recommendation about a financial product (i.e. purchasing, selling or varying a specific financial product) or a recommendation about a sub-set of a product category listed in reg 7.1.33A (see below)

- "General advice" requires an AFSL if it is designed to influence the reader towards a particular financial product or sub-set of the Reg 7.1.33A categories

- "Personal advice" does not require an AFSL (or SOA) unless it contains a recommendation about a financial product as above. But maybe other laws kick in?

- Property is not a financial product but if its held in a financial product (i.e. an SMSF) then the above financial product rules do still apply.

- A trust is not a financial product.

- You don't need an AFSL (or SOA) to make recommendations about the allocation of a client's assets across the categories in Reg. 7.1.33A (being: shares, debentures, government bonds, cash, managed investments, foreign passport funds, investment life insurance products, superannuation)

- Providing factual information that is objectively ascertainable (e.g. via external resources) does not require an AFSL (or SOA)

- Budgeting, and modelling/projecting scenarios (that respect the above rules) doesn't require an AFSL (or SOA)

If the above is all correct then it seems to open the door for genuinely honest, fee-only financial advisers to drop their AFSLs and therefore radically reduce the fees they have to charge mum and dad clients. When it comes to selecting a specific product just hand the client a copy of that Barefoot book, or have a referral arrangement in place with someone still licensed.

My understanding is that if advice in relation to the super structure (not a specific fund) was not captured as financial product advice you could provide comprehensive strategic financial planning advice without the need to be licensed. I suggest strategic advice is "pure" advice and if this shortcoming in the definition could be addressed the cost of the most beneficial part of advice, the strategic part, could be dramatically reduced.

Imagine a 2-5 page strategic advice report instead of a 50-80 page SoA, no dealer/licensing fees, a small PI cost, etc. Too many vested interests. It'll never happen.

It's unfortunate the historical baggage and problems of the planning industry necessarily connects product to advice, even in how it is defined.

I'm right there with you and Michael O'Hara below. I'd love nothing more than to charge my time out, or offer a fixed fee, for running a few strategy papers for a client which tells them what super contributions they need to meet their goals, what fees can do over the longer term and how much cover they need to protect the family.

From there, it's up to them to go and research the market to get it implemented - hell stay with your industry fund for all I care, they do a sound job for 90% of smaller balances, come back to me when you want to look at running it yourself and I'll charge you again. Simple, clean, ethical strategies that are purely bespoke - no more worrying about shoddy admin from platforms or insurance companies trying to wriggle out of their obligations. We can but dream.

Felix, you said "I'd love nothing more than to charge my time out, or offer a fixed fee, for running a few strategy papers for a client which tells them what super contributions they need to meet their goals, what fees can do over the longer term and how much cover they need to protect the family."

No need to dream. As I understand it (after pouring over the legislative detail for a couple of years) what you have said is already legal so long as you don't mention a specific financial product or receive a financial benefit if they go in one direction not another.

Check out Corps Regs 2001 7.1.29(3)(b) too which covers the insurance gap analysis.

It's is advice, but there is an exemption to the requirement to provide an SOA. Regulation 7.1.33A of the Corporations Regulations 2001

Thanks for the heads up Ben

This is the primary issue relating to giving advice today. ALL regulations and investigations related to advice stretch the Corporations law beyond its meaning. As an adviser, I have encountered a plethora of ridiculous barriers to providing advice that is specifically NOT aimed at selling a product.

An example is where a client asks for an overview of the options available in super. This could be done quite simply, with a scattering of examples across the bell curve for structures, costs, liabilities/responsibilities, investment options, access and advice issues. Yet under the current ridiculously inept and cumbersome compliance models, this must be in the form of a SoA - all templates for which require a "recommendation".

It frustrates me immensely that a large number of people who come to me are not after a recommendation. They are after information and examples and comparisons. This industry is so focused on sales - and the regulators on regulating sales - that it is virtually impossible for a member of the public to obtain advice with a minimum of product bias.

Rather than declare every component of finances "personal financial advice" and therefore requiring a complex, costly and - usually inappropriate - Statement of Advice, the regulations should be adjusted to make it clearer and easier for non-specific recommendations to be made.

I am fully aware of the scope for the usual crooks and sales people to take advantage of such a process, yet this could easily be catered for within existing legislation, and with a more directive hand from ASIC in relation to disclosures and disclaimers.

My test for the validity of any financial services regulation is its capacity to reduce the cost and improve access to financial advice. So far, I am a perpetually disappointed financial planner in this regard. The Royal Commission was a chance to set things right. It uncovered plenty of examples of the conflicts of interest and the inability of institutions to account for those in the clients best interests.

Yet the institutions got off unharmed. In fact, the structural biases towards product were further entrenched.

Imagine how many people you could help by meeting with them, having a good working discussion on their cashflow and budget and then help them set some limits on their sustainable standard of living.
We could then provide some forward projections to show how spending within the limits we identify can help them roll into retirement with the same living standard.
Maybe run a projection showing an option to pump all their surplus into retiring debt and then accumulating retirement assets and also one making higher concessional contributions earlier and paying off the debt slower. They could then decide on which approach they prefer.
For me, this is the basic 'financial advice' that most people need and will benefit from the most. Get this strategy on track and they are mostly there.
I would expect we could do this style of work in around 5 hours, with a documented action plan that the client will read and understand.
The funds can then fight it out for their share of wallet to entice members to use their products. We could also do 1 off product advice to consolidate super accounts where appropriate. Under the SOA product recommendation environment.
Imagine the world where clients can afford to pay a fee for strategy advice that really benefits them and is delivered efficiently.
I think someone else has nailed it though. Too many vested interest (product providers, licensees, paraplanners, consultants) hanging onto the gravy train for this to get any legs.

Unless financial planners want to distinguish themselves from other professions, it is disingenuous to argue that there is no advice if there is no product. If a medico tells you to avoid strenuous exercise and any medication, and if this results in harm, could it be argued that no advice was given to escape misconduct? No wonder some advisers push you into a SMSF when it is totally inappropriate as the disgraced and drefrocked Sam did and was exposed.

Ramani, thanks for your comment. Advice is given everyday in relation to a range of matters (both financial and non-financial) and recourse is available under existing law for the receivers of the advice to take action against reckless or negligent advice (including omissions) that causes harm where the advice provider owes a duty of care and it was reasonable for the receiver to rely on that advice. This has not changed. What has changed, as the other commentators have also pointed out, is that the original intent of the financial services reform was not to place licensing restrictions and additional regulatory burden on the provision of advice that is not related to either a recommendation or opinion about specific financial products, e.g. a particular superannuation fund or funds. For example, ASIC's own MoneySmart website allows people to estimate how much they will need in retirement. Is this advice? Absolutely. Is this financial product advice? In my opinion it is not because providing advice on 'superannuation' generally is not a 'financial product' or 'class of financial products' per the definition under the Corporations law, i.e. the advice lacks the link to a specific identifiable super fund. Should ASIC need to be licensed to provide this service? No - it was always intended that the industry could provide this strategic advice without needing to be licensed. ASIC has tried to further clarify this intent by providing specific exemptions for generic calculators. Licensing was only ever intended for those who provide recommendations or opinions for financial products, or who deal in financial products (e.g. sell or provide broker-type services). Extending the definition of financial product advice to cover strategic advice would further reduce access to affordable and product-agnostic advice and planning information.

Well done Paul for highlighting a very important aspect lost by ASIC and fee for ongoing advice. Ongoing review (client meetings) in many cases does not relate to a financial product but it is financial advice the client is seeking. As you have always noted, good Advisers have moved to another level and even after the RC and ASIC asking for every increasing laws, they have not addressed the band-aid approach to regulation is not working for the clients and the advisers.

Although it would be interesting to see how accountants, mortgage brokers, real estate agents would cope with financial advice definition that considers any matter relating to a client financial matters. Maybe this would also fix the lack of attention to the definition of wholesale clients. SOA days could be number and a more sensible approach to provide advice and supervision could be achieved to substantially reduce costs to all clients, as compared to the mindless paperwork we provide to clients base on regulations.

Keep up the good work.

I do follow the nuance but the practicalities are that you couldn't say I won't have a license because sometimes the advice won't end in a product recommendation. What do you do when it does? 12-13 steps for advice, I'm not sure the actual steps you refer to here but ultimately the same still applies, unless you are going to run a coaching business as many may decide to do, then you need an AFSL - sure not in all circumstances, but I'd say in the majority.

Unfortunately this type of thinking belongs in the 1990's and is the reason why advisers need to take away control of the process from aligned groups with product sales agendas. We will never get the respect we deserve while we have this type of thinking or conversation going forward.

Does the law define "financial product" or "class of financial product" anywhere? For example is a trust structure a financial product or not?

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