When an email becomes a regulatory hand grenade

This article has been taken from the NMP education library which has now moved to Advisely

In the Westpac case the High Court found that despite the disclaimers provided by the bank, their phone-based campaigns constituted personal advice. While this decision essentially just clarified the law as it was already written, it does bring up an interesting question: when communicating with current and prospective customers, where is the line drawn between general and personal advice? 

Are advisers who, say, use mass email campaigns to communicate with clients (or market to prospective ones) potentially in breach of their obligations even if the content of the email is general in nature? After all, the High Court decided that a piece of advice constitutes personal advice if a “reasonable person” could interpret it as such, even if a disclaimer suggests otherwise. 

It appears that ASIC recognises these are legitimate questions advisers and licensees will be asking in light of the High Court decision and has recommended that AFSLs review their general advice processes accordingly. Providing further clarification on the issue – and explaining why ASIC won’t be making any recommendations to the Government about changing the label of general advice – the regulator has released research that explores how consumers perceive the dividing line (or lack thereof) between general and personal advice.

The research ASIC commissioned was undertaken by Newgate Communications between January and May 2020 and aimed to ascertain the benefits of redefining (or relabelling) general advice. According to ASIC, there are none. 

“The alternative labels that were hypothetically tested did not make any measurable difference to consumers’ understanding of general advice,” ASIC’s statement explains, “and many participants in the research did not notice the label, In fact, the survey results showed no effect on consumers’ understanding of general advice when a label was used compared to when no label was used.” 

The survey revealed that, instead of specific wording, it was primarily the circumstances in which general advice was provided that influenced consumer misunderstanding. For example, if a person received general advice “one-on-one” (in person or by phone), had some prior relationship with the advice provider or had offered some initial contextualising information during the conversation, they were more likely to believe the advice they were being given was personal. 

Given that these misunderstandings seem to occur regardless of how the advice is labelled (or whether it’s labelled at all), this suggests advisers will need to be much more careful in the future when relaying general advice to current and prospective clients. One solution identified by the research was providing an explicit clarification to the consumer that an adviser giving general advice is not required to act in their best interests.

Of course, given the High Court’s decision, even this may not be enough depending on the circumstances and the adviser’s relationship with the consumer. Should advisers err on the side of caution by assuming the vast majority of their general advice communications will be perceived as personal? And if so, how can advice businesses build scalable processes for the mass-delivery of personal advice?