The Productivity Commission is calling for the scrapping of general advice as a concept. In the Productivity Commission’s draft report into competition within the Australian financial system, it argues the term 'advice' should be limited to work undertaken by a professional adviser on behalf of the client.
The draft states that consumers are not able to distinguish between actual personal advice and the general promotional effort related to products. The Commission has labelled general advice misleading and called for alternative terminology to be tested.
The report states the current terminology of advice requires consumers to understand that general advice is like marketing, and personal advice is tailored to their situation and carries some protection against misuse.
The Commission has stated the Future of Financial Advice (FoFA) reforms have contributed to consolidating the financial advice and asset management markets, which means consumers may be better protected against poor advice but are being offered a narrower range of in-house products.
Providers in product markets are using terms and conditions to shift liability to consumers, with the exception of wealth management due to the FoFA reforms.
The report found overwhelming evidence that few consumers understood or read terms and conditions for the products they purchased, as they are not designed to be understood by the general population, being very dense.
The report states it wouldn’t be hard to conclude that a segment of the financial system is motivated to keep the system as it is. The general population has a low level of financial literacy, which can result in a lack of comprehension of the terms and conditions of consent, even when consent has been given, and the 'take it or leave it' nature of many products discourages deeper consideration.
The Productivity Commission has proposed a new system whereby the obligations of appropriateness fall on the distributor, not the consumer, to reign in poor approaches to consumer realities by incentivised providers.
The Productivity Commission is also considering recommendations to ASIC that financial advisers should be able to provide advice on selected credit products, such as personal loans, credit cards, and home loans.