Just what constitutes “personal financial advice”?
We here in Wealth & Security Planners have noticed a marked increase in the number of people who are looking at various forms of money market news as “advice”. It is a development that has both good and bad aspects to it. This post is a quick look at some of those.
For the individual, the question to ask would be “is this advice for me or is it just data?” In other words, communication technology allows the instant spreading of news, data, information, analysis and gossip but how much of this is actually likely to be of use to the individual? And even if it is of use, should it be considered “advice”?
The most common way of finding information today is to “Google” it. No wonder the United States listed company has a market value of over US$168 billion (!), revenue in excess of US$26 billion and revenue growth of 23.5% year-on-year (as a by-the-by, you can find all of this by “Googling” the term “google market capitalisation”, which will lead you to Yahoo Finance’s excellent overview).
This means that with very little effort, it is possible to track down a bewildering array of data and information from an enormous array of sources. Of course, the one thing that internet contributors have not yet worked out is how to judge the quality of that data and information. There is no simple way of determining whether one source is better or worse than another. You cannot even be sure that the actual data or information is correct. So right from the start, we have an issue about the quality of this data, even if we do decide that it is “advice”.
There is a great phrase that i heard once, “drowning in data, thirsting for information“.
There are a lot of labels being stuck onto this process… “infobesity” being a particularly good one. The link provided will take you to an academic article that considers the validity of information obtained from Google versus that obtained using more traditional academic resources. It is the kind of question that should be asked more and more, especially when Australian superannuation funds are embarking on a move towards online advice provision, following the various government enquiries into super and their recommendations.
Hardly a day goes past when there isn’t an announcement about one super fund or another moving to provide “online advice” or “cheap personal advice”. Here is one about an “Industry Fund” but likely legislative changes mean that more and more funds will offer some form of basic advice to members. In many ways, this is an excellent idea. Getting personal advice has become more and more expensive, as the level of technology, compliance and legislative minimum standards required for financial advisors has lifted.
Over time, it is likely that legislators or industry folk will come up with a better way of identifying the types of advice that are available or that could be sought. For example, current legislation draws a line of distinction between “general financial advice” and “personal financial advice“.
General financial advice is the type provided by email and online newsletters, such as the Eureka Report or The Intelligent Investor or Huntley’s Your Money Weekly and many others. This is where various analysts and commentators with experience in particular areas choose to make that experience and knowledge generally available – usually for a subscription fee of some kind. This can be of varying quality and speciality but the general quality of this type of service has improved to the point where some provide general advice on par with what would have been considered top-level corporate advice once-upon-a-time (i can say things like that because i’ve been around for a while and, once over 40 years of age, we men tend to regress to that kind of language).
To provide general financial advice, the individual or business would need to hold an Australian Financial Services Licence (AFSL), such as that held by WSP Financial Services Pty Ltd (No. 237463). To check whether a source has this type of licence, you can visit the website of the Australian Securities & Investments Commission (ASIC), which offers searches for this type of licence, among others. As an example, this website only offers advice of a general nature. Nothing in this site should be considered personal financial advice. You’ll see why, below.
Another government website that talks about these kind of issues is here – www.understandingmoney.gov.au. It includes a page that discusses the difference between providing “information” and providing “general advice”. It’s well written and concise.
Personal financial advice is far more specific. It will involve a suggestion something along the following lines (i am being rather broad here, and using daily English rather than the legislative interpretations, which can be found here) :
- This is the best product/service for you
- This product/service will improve your position
- This product/service is better than others you could choose from
Naturally, there is no way of knowing whether any of the above are actually true unless that advice has considered a number of areas that are specific only to the person for who the advice is being provided. Here are a few examples of the kind of things that personal financial advice is expected to take account of :
- Your current financial position, including
- Existing assets
- Existing debts, guarantees or obligations
- Existing income
- Existing expenses
- Known or expected changes to any of these
- How any changes will impact on your personal,
- tax rate
- social security position
- estate planning expectations
- investment portfolio profile
- Your personal attitude to risk and returns (“risk profile”)
All of this should be accounted for in the context of existing market conditions (economic, legislative, product development etc).
Hopefully, you will see from this that there is a very large distinction being drawn by the law, and therefore by the financial planning community, between general financial advice and personal financial advice. Hopefully, you will also see just why genuine personal financial advice is a highly individual thing, and not one that can be achieved through a scatter-gun email, newsletter or internet provision of data or information.
Eventually, it could be expected that online tools and calculators will evolve to the point where they can provide very quick, accurate and verifiable answers to specific questions. That would be a good development indeed.
It is unlikely, in the view of this particular correspondent, that personal advice will ever be successfully delivered in such a format – we humans are just a little too human in our understanding, knowledge, bias, preference, intuitive expectations, likes and dislikes. That is where the services of another flawed but caring, knowledgeable and experienced human is likely to be helpful.
We will cover more on sources of information and data in later posts.