Financial Services

The type of financial advice a client will need is dependent on what they are trying to achieve, and how much money they have to invest. It is important to note the differences between personal advice and general advice as they give rise to differing obligations. General advice does not take into account the individual circumstances of the client, such as their objectives, needs and financial situation. Personal advice takes into account the needs and financial situation of the client. This differentiation has been granted new significance in light of the present dispute between ASIC and Westpac Banking Corporation.

Whether personal advice or general advice has been given has been the subject of many Financial Ombudsman Services decisions. In 2012, a client sought advice from a financial services provider (FSP) in relation to the investment of for money for retirement planning purposes. However, the FSP claimed that they only provided general financial advice and did not issue a financial product as defined by the Corporations Act 2001 (Cth). In this decision, it was stated at paragraph 52 that even though general advice warnings are given, this is not evidence that only general advice was provided.

Whether personal advice is provided to a client is a question of fact, being whether the provider considered the recipient’s relevant personal circumstances, or a reasonable person in the circumstances would have expected the provider to have considered their circumstances. In the 2012 decision, the decision maker was satisfied that the advice given was personal advice. The implication of this was that the FSP was required to compensate the client for their loss, resulting from breach of obligations.

Similarly, in 2015, an authorised representative of an FSP provided a client inappropriate personal advice causing loss, as the client did not have the capacity to support increased financial disclosure. The FSP did not seek to obtain the client’s personal circumstances. However, the FOS determined that not obtaining personal information does not prevent personal advice from being provided. In the contrary, it means that if personal advice is provided, it is done in contravention of the Corporations Act. The implication of this was that the FSP provided inappropriate personal advice, and was required to pay the client $36,781.67 and interest to account for the loss.

The Federal Court case of Australian Securities & Investments Commission v Westpac Banking Corporation ACN 007 457 141 is a current case significant to this issue. Westpac breached obligations by failing to assess whether borrowers could meet their repayment obligations before signing home loan contracts. The chief executive of Westpac stated in relation to ASIC’s claims that ‘if the ASIC case was to be successful, it would become effectively close to impossible to deliver general advice as intended by the FOFA regime’.

In summary, it is important that FSPs and holders of financials services licenses are aware of the difference between personal and general advice, to ensure they are aware of their obligations, and to avoid compliance breaches. If this article raises any legal issues for you, please get in touch! If you would like more information about financial service providers or advisers please check out our Resources Centre.

This article was authorised by Warwick Heeson.

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