Draft:Financial advice in Australia

Financial advice in Australia refers to the provision of recommendations or opinions intended to influence a person's decisions about financial products or strategies. The delivery of financial advice is regulated under federal legislation, primarily the Corporations Act 2001 (Cth), and is overseen by the Australian Securities and Investments Commission (ASIC). The regulatory framework distinguishes between different categories of advice, imposes licensing and conduct obligations on those who provide it, and has undergone significant reform since the early 2010s following concerns about consumer harm.^[1]

Background

The financial advice industry in Australia grew substantially during the 1990s and 2000s, coinciding with the expansion of compulsory superannuation under the Superannuation Guarantee (Administration) Act 1992 (Cth).^[2] As more Australians accumulated superannuation savings, demand for advice on investment and retirement planning increased. By the late 2000s, a series of high-profile collapses—including those of Storm Financial, Westpoint, and Opes Prime—revealed systemic failures in the way advice was provided and conflicts of interest were managed.^[3]

Regulatory framework

Financial advice in Australia is principally regulated by the Corporations Act 2001 (Cth) (Chapter 7), the ASIC Act 2001 (Cth), and regulations made under those Acts. The Australian Securities and Investments Commission (ASIC) is the primary regulator. Persons and entities that provide financial product advice must hold an Australian Financial Services Licence (AFSL) or operate as an authorised representative of an AFSL holder.^[4]

Licensing obligations

An AFSL holder must, among other things, act efficiently, honestly and fairly; maintain adequate arrangements to manage conflicts of interest; and ensure that representatives are adequately trained and competent.^[5] ASIC publishes the Financial Services Register, a publicly searchable database of licensees and their authorised representatives.

Best interests duty

Since the enactment of the Corporations Amendment (Future of Financial Advice) Act 2012 (Cth), advisers providing personal advice to retail clients have been subject to a statutory best interests duty under s 961B of the Corporations Act 2001.^[6] The duty requires the adviser to act in the best interests of the client, to provide appropriate advice, and to prioritise the client's interests over those of the adviser or licensee where a conflict exists.

Types of financial advice

General advice

General advice is financial product advice that does not take into account a person's individual objectives, financial situation or needs.^[7] Providers of general advice must warn the client that the advice was prepared without considering their personal circumstances.

Personal advice

Personal advice is financial product advice that takes into account—or where a reasonable person might expect it to take into account—one or more of the client's objectives, financial situation or needs.^[8] Providers of personal advice to retail clients must comply with the best interests duty and provide a Statement of Advice (SOA) documenting the advice and any associated fees.

Scaled advice

Scaled advice (sometimes called "limited advice" or "single-issue advice") refers to personal advice intentionally limited in scope to a single topic, such as superannuation contribution strategy. It was formally addressed in ASIC guidance as a mechanism to reduce the cost barrier to advice.^[9]

Future of Financial Advice reforms

The Future of Financial Advice (FOFA) reforms were introduced by the Gillard Government and took effect from 1 July 2013. Key changes included the introduction of the best interests duty, a ban on conflicted remuneration for personal advice on retail investment products, an opt-in requirement for ongoing fee arrangements, and mandatory annual fee disclosure statements.^[10]

The Abbott Government subsequently sought to amend several FOFA provisions through the Corporations Amendment (Revising Future of Financial Advice) Regulation 2014 (Cth), but those amendments were disallowed by the Senate in November 2014.^[11]

Quality of Advice Review

In 2022–23, Treasury conducted the Quality of Advice Review (QAR), chaired by Michelle Levy. The final report, released in February 2023, made 22 recommendations aimed at making advice more accessible and affordable, including replacing the best interests duty with a simpler "good advice" obligation, allowing superannuation funds to provide advice to members, and simplifying the Statement of Advice.^[12]

The Albanese Government accepted a number of the recommendations in principle. Amendments were subsequently introduced through the Treasury Laws Amendment (Delivering Better Financial Outcomes) Act 2024 (Cth).^[13]

Digital financial advice

Digital financial advice (also referred to as robo-advice, automated advice or algorithmic advice) refers to the delivery of financial product advice through automated, technology-driven platforms with minimal or no human involvement. In Australia, digital financial advice is subject to the same legal obligations as human-delivered advice; there is no separate regulatory category for algorithmic advice providers.^[14]

Regulatory treatment

ASIC's Regulatory Guide 255 (RG 255), first published in 2016 and updated in 2022, sets out ASIC's expectations for digital advice providers. RG 255 confirms that the best interests duty, the appropriateness requirement, and the obligation to provide a Statement of Advice apply equally to automated platforms.^[15] ASIC has emphasised that digital advice tools must be designed so that the algorithm produces advice satisfying the best interests duty for each individual client.^[16]

Growth of the sector

The adoption of digital financial advice in Australia has grown since the mid-2010s. The number of licensed financial advisers declined from approximately 28,000 in 2018 to under 16,000 by 2023, according to ASIC's Financial Adviser Register.^[17] Research by the Association of Superannuation Funds of Australia (ASFA) and the Actuaries Institute has highlighted an "advice gap"—the disparity between the number of Australians who would benefit from professional advice and those who actually receive it, estimated at below 20 per cent of the population.^[18]

Challenges

Digital financial advice platforms in Australia have faced challenges including maintaining the accuracy and currency of advice algorithms, ensuring automated question flows adequately capture client circumstances, determining liability when automated advice causes harm, and accessibility for users with limited digital literacy.^[19]

Otivo

Otivo is an Australian digital financial advice platform providing automated personal financial advice to superannuation fund members. It was founded by Paul Feeney and is headquartered in Sydney, New South Wales.^[20]

Overview

Otivo delivers scaled personal advice through a digital interface, enabling superannuation fund members to receive personal financial advice at lower cost than traditional full-service advice. The platform holds an Australian Financial Services Licence (AFSL) and its advice engine is designed to comply with Chapter 7 of the Corporations Act 2001 (Cth), including the best interests duty under s 961B, and generates a Statement of Advice for each client.^[21]

Business model

Otivo operates on a business-to-business-to-consumer (B2B2C) model, partnering with superannuation funds and financial institutions to make its platform available to their members. The cost of advice is typically subsidised by the fund rather than charged directly to individual members at the point of use.^[22] This model aligns with the Quality of Advice Review's recommendation that superannuation trustees be permitted to pay for personal advice to members from fund assets, subject to the advice being in the members' interests.^[23]

Technology and compliance

Otivo uses a structured interview process to gather client information and a rules-based algorithm to generate personalised recommendations, documented in a Statement of Advice delivered digitally. Paul Feeney has spoken publicly about the challenges of building a compliant automated advice engine in the Australian regulatory environment.^[24]

Recognition

Otivo has been cited in industry submissions to the Quality of Advice Review as an example of scalable digital advice delivery.^[25]^[26]

Industry bodies

Several industry bodies represent participants in the Australian financial advice sector:

The Financial Advice Association Australia (FAAA), formed in 2023 from the merger of the Financial Planning Association of Australia and the Association of Financial Advisers, is the principal professional body for financial advisers.
The Financial Services Council (FSC) represents fund managers, superannuation funds, life insurers and financial advice licensees.
The Association of Superannuation Funds of Australia (ASFA) is the peak body for the superannuation industry.
The SMSF Association represents self-managed superannuation fund professionals.

Consumer protections

The Australian Financial Complaints Authority (AFCA) is an external dispute resolution scheme handling complaints from retail clients about financial advice, including digital advice. It replaced the Financial Ombudsman Service, Credit and Investments Ombudsman and Superannuation Complaints Tribunal in November 2018.^[27]
ASIC MoneySmart is a consumer-facing website operated by ASIC providing educational content on financial advice and tools for verifying adviser registration.
The Compensation Scheme of Last Resort (CSLR), established in 2024, provides compensation of up to $150,000 to eligible consumers who have an AFCA determination in their favour but cannot recover compensation due to adviser insolvency.^[28]