General advice emerges as a post-FASEA option

Philborne Financial Industry Consultants director Phil Osborne told ifa that with a flood of advice practices likely to come on the market as practitioners either opted out or were unsuccessful in sitting the FASEA exam, some business owners were considering a switch to general advice as a potential option.

“I’ve been talking to larger groups that have multiple people in their license saying what do we do and how do we progress – they’re staring down the barrel of selling their practice for next to nothing or continuing,” Mr Osborne said.

“General advice is an option, but like anything you need to make sure the adviser understands the risks they are taking on board – it’s a matter of guiding people to understand how it all fits together.”

The comments come following the latest FASEA statistics that show approximately 5,000 advisers on the ASIC register – or 26 per cent of the industry – still need to pass the industry exam, with only two sittings left until the compliance deadline and the July session results still pending.

Mr Osborne said moving to a general advice-only authorisation could be attractive for older advisers who were not interested in meeting the FASEA standards long-term, but wanted to make a gradual transition to retirement.

However, it was important for practitioners to consider how this transition could be managed with clients in the most efficient and compliant way, he said.

“It’s not just a case of saying I’ll get to the end of the year and I’ll be authorised to do general advice, because if you’re still dealing with the same clients, you are putting yourself in the position where the client says ‘you’ve been able to tell me this in the past, why can’t you tell me it now’,” Mr Osborne said.

“The best case scenario would be to nominate someone else in the practice to provide personal advice. You can then say to the client ‘the industry is such now that we need to have specialist roles, so I’m taking a step back to focus on the products that are available and the best options for clients in general, and this person is going to deal with your situation from now on’”.

There were also insurance implications to consider for licensees who chose to allow advisers to continue in the industry under a general advice-only authorisation, as the legal delineation between general and personal advice was not very clear.

“In the recent case against Westpac, the High Court said that advice is in the eye of the beholder, so even if you think you’re giving general advice, but the client takes what you’re saying to be reflective of their situation, you’ll be giving personal advice,” Mr Osborne said.

“There could be an unfortunate situation where a client could go to the ombudsman and say ‘the adviser told me this’, and if they’re not licensed to provide personal advice it could create a liability if there’s a ruling against them. The PI insurer could say you’ve been giving personal advice when you’re not authorised to, so it’s easy to see how a claim could be knocked back.”