‘Generally speaking’ – What to look out for if you’re considering a move to a general advice model

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Zoe Higgins Previously a Special Counsel at Holley Nethercote Linkedin

In conducting licensee reviews for our clients, we look at their documented compliance arrangements and speak with their staff.  One recent theme to emerge from many of these interviews can be described as that of regulatory burnout.  This is true not just for financial planning businesses (October is going to be a milestone month for everyone with an AFSL), but it is especially true for that sector.

Regulatory complexity has some of our clients considering a jump to a general advice model.  Higher professional indemnity insurance premiums (and the small matter of the ASIC levy, tied to AFSL authorisations) are also driving the move in some cases.  Other businesses simply don’t have enough time to devote to the delivery of a high quality personal advice process, or they find their clients aren’t willing to put in time or money for the same.

So, what are some issues to consider before you go varying your licence?  It goes without saying that those discussed below are just some examples and that you should consider what’s right for you before making a decision…

Consider your key areas of practice and your client base

ASIC and APRA recently released join guidance on the charging of advice fees to superannuation accounts.  That guidance indicated trustees should be ‘cautious’ about permitting third party providers to charge fees for the provision of general advice.

Advice licensees who provide a significant proportion of their services through superannuation may need to investigate their ability to continue key relationships if they only provide general advice.

Also consider whether the particular issues you are dealing with could be resolved by continuing to provide personal advice, but exclusively to wholesale clients.  While not without its own challenges, this may be an option worth thinking about if a large proportion of your clients qualify as wholesale clients.

Help your representatives get back to basics

Personal advice suddenly labelled general advice is still personal advice.  We’ve published plenty of commentary on the Westpac case, and we won’t belabour the definitions of personal and general advice here.  However, it’s uncontroversial to say that the difference between general and personal advice can be grey.

It’s very likely your representatives could use some refresher training on the difference between personal and general advice before being asked to limit their services to only one of these categories.  In our experience, it can really help representatives to have a step-by-step formula to work through challenging situations.  The most reliable formula is simply breaking down the few elements of the definitions of personal and general advice and stripping away any industry myths or jargon that only complicate matters.  We provide training that allows representatives to workshop common examples they may have struggled with in practice.

Ease the way for clients

Where you have provided personal advice to existing clients, you may need to take extra steps to displace their possibly reasonable understanding that any further advice will be tailored to their situation.  One aspect of this could be providing representatives with examples of how best to explain to individual clients (and test clients’ understanding) that the next piece of advice will be general advice only.  If representatives have sample wording to fall back on, it will make their task easier.  A broader marketing campaign could be used to explain the move to general advice, and to highlight the benefits to clients (such as lower costs).

You should also think about whether you want to refer clients to a third party for any personal advice needs.

Make a clean break

You’ll need to decide if you want to remove the personal advice authorisation from your AFSL or simply stop using it.  In either case, we also recommend creating a checklist of the practical tasks you’ll need to attend to if you decide to move to a general advice model.  The items discussed below are some examples to get you started.

Obviously, you will need to decide how to deal with ongoing fee arrangements for the provision of personal advice, and (if terminating ongoing fee arrangements part way through a cycle) consider the need to refund fees.

You will need to notify ASIC once you have revoked advisers’ authorisations to provide personal advice to retail clients.  You should also review the content of your FSG and your website to ensure they accurately discuss the types of services you will provide.

You’ll also need to have a plan for monitoring representatives’ transition into a general advice model, to make sure they aren’t venturing back to personal advice territory.  The risk of this happening should be recorded in your risk register.

And, we know you won’t forget to have that conversation about PI insurance premiums with your broker.

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Author: Zoe Higgins, Special Counsel