Buried at number 40 of the 44 recommendations of the Murray Inquiry is one of the shortest but most potent recommendations which has the power to shake the foundations of the financial planning, advisory and investment industry in Australia.
Murray recommended that the Government should look to:
Rename ‘general advice’ and require advisers and mortgage brokers to disclose ownership structures.
Channeling his inner Daniel Kahneman, Nobel laureate and father of behavioural economics, Murray wrote that consumers can misinterpret the current regime which sets out advice as either:
- Personal advice takes account of a person’s needs, objectives or personal circumstances, whereas general advice does not.
- General advice includes guidance, advertising, and promotional and sales material highlighting the potential benefits of financial products. It comes with a disclaimer stating that it does not take a consumer’s personal circumstances into account.
The report noted that this distinction could be misleading because the “use of the word ‘advice’ may cause consumers to believe the information is tailored to their needs. Behavioural economics literature and ASIC’s financial literacy and consumer research suggests that terminology affects consumer understanding and perceptions.“
Amen to that.
But Murray went further, citing research that said 55% of consumers didn’t know their adviser wasn’t independent.
“Often consumers do not understand their financial adviser’s or mortgage broker’s association with product issuers. This association might limit the product range an adviser or broker can recommend from.”
As a result, Murray is recommending more transparency of ownership but in particular that, “general advice” should be replaced with “a more appropriate, consumer-tested term to help reduce consumer misinterpretation and excessive reliance on this type of information”.
Murray is spot on the money – general advice is specifically not meant to take into account personal needs, objectives or circumstances and so is much more closely aligned with sales and should be appropriately named.