When should a warning be given?

Date: Sep 14, 2014
Document Type: Article

Understandably the investment of money in any type of financial product comes with its risks. In order to educate clients, and make them aware of the potential dangers of investing in particular financial products, statute requires a number of general and specific warnings to be given. It is hoped that, combined with the documents that must be provided (for more information about the recommendations given to clients please see earlier articles), the warnings will encourage clients to thoroughly consider the suitability of products and seek sufficient professional advice.

Financial product advice is a recommendation or statement of opinion that could reasonably be regarded as being intended to influence a person in making a decision about a particular financial product or class of financial product. The advice could be oral or in writing. There are two forms of financial product advice – personal advice and general advice.

Personal advice is given when the provider of the advice has considered the person’s objectives, financial situation and needs. Therefore, personal advice will contain a risk assessment and warnings particular to that person. All other advice is general advice. Since general advice doesn’t consider the particular circumstances of a person, financial services providers are required to give a ‘general advice warning’.

General Advice Warning

When giving general advice to a retail clients  a licensed financial services provider must give a general warning which conveys that:

  • the advice has been prepared without taking into account the client’s objectives, financial situations or needs;
  • therefore the client should, before acting on the advice, consider the appropriateness of the advice, having regard to their objectives, financial situation and needs; and
  • if the advice relates to the acquisition or possible acquisition of a particular financial product, the client should obtain a Product Disclosure Statement relating to the product and consider the Statement before making any decision about whether to acquire the product.

The providing entity is not required to use any exact wording when conveying this warning, so long as they convey it’s substance in a way the client is likely to understand. This may require the providing entity to take into account age, culture and education of a client when giving the warning.

The warning must be given to the client at the same time as the advice is provided and by the same means as the advice is provided. Therefore, the warnings need only be oral if the general advice is given, for example, over the phone.

If advice is given orally, the warnings can be very simple, so long as they convey the limitations of general advice. For example, saying something along the lines of ‘this advice is general, it may not be right for you’ or ‘you will need to decide whether this advice meets your needs because I haven’t’ may be sufficient. The main idea is to convey that the advice is not tailored to them and they shouldn’t necessarily rely on it.   

Other Warnings

Although a financial services provider should undertake reasonable inquiries about a client’s circumstances when giving personal advice, sometimes, for whatever reason, the picture may be incomplete or inaccurate. In those circumstances, the financial services provider must warn the client that:

  • the advice is based on incomplete or inaccurate information relating to the client’s circumstances; and
  • therefore, the client should, before acting on the advice, consider the appropriateness of the advice, taking into account their objectives, financial situation and needs.

However, it should be noted that giving this warning does not relieve the financial services provider from the obligation to make reasonable inquiries, act in the best interests of the client or provide advice that is appropriate.

Craddock Murray Neumann Lawyers Pty Ltd are experienced practitioners in the field of corporate law. For more information about our services, please contact us at craddock@craddock.com.au or call us on (02) 8268 4000.

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