The continued licensing exemption for the provision of general advice needs to be addressed because it is distorting the market in favour of product issuers and depleting consumer protections.
That is one of the key bottom lines of a Financial Planning Association (FPA) submission to the Australian Securities and Investments Commission (ASIC) which urges the urgent addressing of the question of general advice if the regulator genuinely wants to tighten up on unsolicited sales of direct life insurance and consumer credit insurance.
The FPA said that the effectiveness of any move to ban unsolicited advice would be hampered by the ongoing issue of the definition of general advice in the Corporations Act.
“General advice does not take a consumer's personal circumstances into account. However, consumers often misunderstand that the ‘advice’ or information provided during a direct sale of a financial product is designed to sell a product to the consumer unconstrained by the person’s personal circumstance,” the FPA said.
“This misunderstanding is not overcome by the provision of the required general advice warning which still permits entities to perform a sales pitch under the guise of the term ‘advice’.”
The FPA said there was excessive reliance on promotional information being provided under the guise of general advice and called for removal of the exemption for financial product issuers.
“This exemption distorts the market in favour of product issuers and depletes consumer protections,” it said. “It promotes a sales culture and is counter to and undermines the financial advice best interest duty in the Corporations Act.”
“The Government has spent the last 8 years bolstering consumer protections around the purchasing of financial products through the introduction of the Future of Financial Advice (FoFA) reforms, the new financial adviser professional standards and ethics regime, and the new product design and distribution legislation and enhanced ASIC regulatory powers.”
“The removal of the general advice remuneration exemptions under FoFA must also be considered as they encourage an inappropriate sales cultures and create an environment where consumers are at risk of being sold products which may not be appropriate,” the FPA said.