There is a contest underway between two heavyweights.
In one corner of the ring we have Big Data, about which the Murray Inquiry has said:
'Growing amounts of structured and unstructured data are being collected, stored and used by private sector firms and governments, a phenomenon known as ‘big data’. Firms increasingly seek to extract value from these vast stores of data through information analytics to create and capture value in new ways. In particular, many are seeking to influence a greater share of consumers’ spending.'
In the other corner we have the definition of ‘personal advice’ in section 766B(3) of the Corporations Act 2001 (Cth). It says personal advice is financial product advice that is given or directed to a person (including by electronic means) in circumstances where:
- the provider of the advice has considered one or more of the person's objectives, financial situation and needs; or
- a reasonable person might expect the provider to have considered one or more of those matters.
If personal advice is given, a statement of advice is required. The obligations imposed by FoFA, including the so-called ‘best interests’ obligation, must also be complied with. These requirements tend to diminish the ability of organisations to ‘extract value’ from Big Data.
Question 1 – real boxing or shadow boxing?
The first question is whether the tension between Big Data and personal advice is really a contest.
Since the concept of personal advice was first enacted in 2001 a lot has been said about its scope and meaning. Much of this has been misguided. Time and again confusion has been apparent over the differences between personal advice and general advice and between financial product advice and information which is not financial product advice.
ASIC’s activities in this area have not really helped to clarify what might and might not be personal advice. The class order for website calculators is a case in point. ASIC’s latest efforts are reflected in Regulatory Guide 244 Giving information, general advice and scaled advice, published in December 2012.
ASIC does try to be helpful in RG 244. It says: ‘If you have personal information about a client, this will not, by itself, mean that the general advice you give them is personal advice’. It also says: ‘You can use personal information about a client to give general advice that is more relevant to a client’. So far, so good.
But then the picture becomes unclear. ASIC goes on to say: ‘We will not take action where you give personal advice merely because you give general advice using personal information about a client’s relevant circumstances to choose general advice that is relevant and useful to them’. The language of ‘not taking action’ implies that the advice is personal advice, as defined – were it otherwise, ASIC would have no basis for ‘taking action’. The references to personal and general advice also serve to compound the confusion.
Then, whatever it is ASIC has given with the one hand, it takes away with the other. It says that its ‘no-action’ position only applies if ‘you do not, in fact, consider the client’s relevant circumstances when you prepare the advice’ and ‘it is unlikely that the client would expect the advice provided to reflect a consideration of their relevant circumstances’. Trying to make sense of this and then relating it back to the definition in the law is about as rewarding as seeking to interpret a bowl of porridge.
We think the objectives, financial situation and needs must be specific to the particular person in question in order for any advice to be personal. This means that advice based on a presumption that a person with a particular characteristic (eg their age) generally has any particular objective or need would be general advice, not personal advice.
We also think that the expression 'has considered' brings with it significant limitations. Merely knowing something doesn’t mean you have considered it. The questions of what you know and what you have considered are ultimately questions of fact (with the second question having a distinctly qualitative dimension). Again, it is usually unsafe to presume that any particular advice provider knows something about a person or, even if they do, that they have considered it.
The second limb of ‘personal advice’ is also not as broad as some might think. What a reasonable person might expect is not to be answered in the abstract. The section demands that it be answered by reference to the particular circumstances.
Question 2 – and the winner is?
Whatever the answer to the first question might be, the second (and final) question is, assuming there is a contest between Big Data and personal advice, who is likely to win it? That question will only be answered by David Murray’s final report and the Government’s response. However, we would be surprised if it isn’t Big Data’s hand that is held aloft at the end of the contest.