Law firm rejects changes to definition of personal advice

In its submission in response to the Quality of Advice Review (QAR) proposals paper, Herbert Smith Freehills (HSF) said, “Whilst we understand and appreciate the desire to reduce regulatory uncertainty, we consider that the proposed changes to the definition of ‘personal advice’ will lead to unintended consequences and inequalities in the way advice is regulated.”

In the paper, QAR reviewer Michelle Levy proposed that the “definition of ‘personal advice’ should be somewhat broader so it is clear that it applies whenever a recommendation or opinion is provided to a client about a financial product (or class of financial product) and, at the time the advice is provided, the provider has or holds information about the client’s objectives, needs or any aspect of their financial situation”.

HSF said this change would “mean a product issuer that markets its products to the general public will be subject to a different standard of care” depending on whether it is an existing customer or a consumer with no prior relationship with the product issuer that receives the advice.

The firm added: “Our concern is that the effect of this proposal in practice would be that financial product issuers would need to treat all marketing as ‘personal advice’ and, therefore, ensure that the product issuer satisfies the proposed ‘good advice’ duty, whereas the same communication by someone other than a product issuer (such as a ‘finfluencer’) would not be regulated as financial product advice at all given the proposal to not regulate ‘general advice’.

“One alternative would be to exempt general marketing from ‘personal advice’. However, to our minds, a better way to achieve this same outcome would be to retain the current definition of personal advice.”

In contrast, the Law Council of Australia said it supports the proposed change and “agrees that it is likely to reduce regulatory uncertainty by shifting the focus from the adviser’s perception (as to what information the adviser ‘considered’, which only the adviser can really know) to the perception of the client (as to what information the client has ‘given’ to, and is held by, the adviser).”

Deregulation of general advice

HSF also disagreed, in part, with the Ms Levy’s proposal that “the regime should no longer regulate ‘general advice’ as a financial service and the definition should be removed together with the obligation to give a general advice warning”.

Instead, the law firm proposes that deregulation of general advice would only apply to advice provided to wholesale clients.

“In our view, the regulation of general advice provided to wholesale clients is an unnecessary regulatory burden and ultimately delivers little value,” HSF said in its submission.

“This layer of regulation adds no value when marketing products and services to institutional investors in Australia such as superannuation funds, who in our view do not require (or ultimately wish to bear the cost of) the consumer protections afforded by the regulation of ‘general advice’.

“However, given the pace of change in the way ‘general advice’ (as it is currently defined) is provided to consumers, we consider that there is merit in continuing to regulate the provision of general advice to retail clients as a financial service.”

The firm also expressed concern around social media influencers in the financial space (finfluencers), adding that “there is a need to regulate ‘finfluencers’ who endorse specific financial products”.