Advice isn’t black and white. It’s a million grey areas, don’t you find?
Ridley Scott (Responsible Manager)
The financial services industry in Australia operates within a complex regulatory framework, yet certain areas remain ambiguous. These “grey zones” create compliance challenges for licensees and advisers, particularly as technology reshapes traditional advice models.
Here at Assured Support, we frolic in the grey. We believe these grey areas create opportunities to be creative and help licensees and advisers navigate their way through the financial services landscape.
There are more opportunities now than there have ever been to utilise technology in many areas of advice. We think these opportunities can help save time and resources and provide potential for advisers to do what they do best – advise clients.
They also enable a broader scope of client interactions and chances to connect with potential clients via additional avenues (e.g., social media).
As always, where opportunity arises, new challenges cometh. Caution must be exercised, but we think with a little guidance, both advisers and clients can benefit from the digital landscape, and no one will get FOMO.
In this article, we’ll explore three key grey zones and how to manage them:
- The regulatory boundaries between AI-driven and human advice.
- Compliance risks in real-time client communications via social media or messaging apps.
- The blurred lines between general and personal advice in digital tools.
AI-Driven vs. Human Advice: Who’s Responsible?
The Challenge
The rise of robo-advisers and AI-driven financial tools has blurred the lines between human and automated advice. ASIC’s RG255 provides some direction on digital advice, but questions remain about liability when AI-generated recommendations lead to poor client outcomes.
Robo-advisers provide advice based on sophisticated algorithms and well-known strategies, such as the Modern Portfolio Theory (MPT). The MPT is based on the 1950s model developed by Harry Markowitz, which is still used in portfolio construction today.
If a client were to engage a human adviser to construct the advice, it would generally be more expensive than robo-advice. It isn’t for everyone (and doesn’t claim to be) and also has limitations, but clients with more simple needs can get access to the advice they need without seeing a human adviser.
Robo-advisers are well-equipped to deal with straightforward clients, but they do struggle with complex circumstances and complex advice strategies.
In addition to this, some of the criticisms of robo-advisers relate to their lack of complexity and empathy—which is a no-brainer because they aren’t human…
What happens when the advice provided results in poor outcomes, and who gets cancelled?
Case Study: Lime Financial Services
In 2019, ASIC raised concerns with Lime Financial Services after reviewing a sample of files where robo-advice had been provided. These concerns were associated with the inadequate inquiries the online tools made about the client’s objectives, financial situation, and needs. In some cases, the advice itself was “in conflict with client goals or with other recommendations also generated by the tools.”
Some of these recommendations involved contributions, establishing Self-Managed Super Funds, purchasing property within them and commencing pensions.
The Outcome:
Lime Financial Services closed its robo-advice tools as a result of ASIC’s findings.
ASIC Commissioner at that time, Danielle Press, stated:
“Digital advice tools offer a convenient and low-cost alternative to consumers who may otherwise not seek personal financial advice. However, the advice provided through these tools must meet the same legal obligations required of human advisers – the advice must be appropriate to the client and comply with the best interests duty. ASIC expects AFS licensees and financial advisers using or recommending digital advice tools to ensure that they adequately monitor and test the advice for quality and appropriateness.”
Who’s Responsible?
SkyNet? No. Licensees and advisers who are using the tools.
If an adviser has incorporated AI-driven tools into their process, the data received needs to be assessed and validated before commencing with any advice.
Licensees need to have adequate measures to monitor and test the tools, algorithms, and advice that are generated.
Managing the Risk
- Adequate resources: Licensees and firms need to establish clear policies on who is responsible for building, monitoring, and testing the tools and algorithms and ensure adequate resources are available for this work to be completed regularly.
- Human oversight: AI should complement, not replace, human review. Regular audits of AI-generated recommendations aligned with the licensee’s policies and expectations can mitigate risks. Simply leaving the tools to their own devices will ultimately expose licensees and advisers to regulatory action.
- Transparency: Clients must understand whether they are receiving human or algorithmic advice and the limitations of each. This would need to occur prior to the client being engaged for advice.
Real-Time Client Communications: The Social Media Dilemma
“Bro, it’s digital gold!“
Warren Buffett (Crypto Finfluencer)
The Challenge
Advisers:
Financial advisers frequently engage with clients via social media and messaging apps. However, these platforms create compliance risks, including record-keeping failures and inappropriate advice processes, such as dealing by arranging and misleading or deceptive conduct.
A ‘harmless chat’ with a client can quickly become a compliance nightmare for an adviser. In some cases, overstepping the mark is very easy, and if the client provides any information through the platform, then it is difficult to ensure its security.
S766B states, “Financial product advice means a recommendation or a statement of opinion, or a report of either of those things, that:
(a) is intended to influence a person or persons in making a decision in relation to a particular financial product or class of financial products, or an interest in a particular financial product or class of financial products; or
(b) could reasonably be regarded as being intended to have such an influence.
If an adviser is seen to have influenced someone to make a decision, this is advice.
Finfluencers:
Financial services laws are quite clear. If you provide advice, you must have a financial services licence.
There are many social media influencers who provide deep spiritual and practical insights to their devout followers, and I’m sure they enrich, nourish and generally improve their subject’s lives. Be that as it may, when this guidance overflows into the realm of financial services, influencers can quickly find themselves in hot water. Warmer than the Mediterranean currents they float on to ultimate enlightenment. Yoga anyone?
Any promotion of a product online, or promotion of an affiliate link that the promoter is paid for, is likely advice.
ASIC sees this as sus and will take immediate action, no cap. The financial services industry is heavily regulated and focused on consumer protection. While influencers genuinely want to help everyone, in as many ways as possible, we suggest they avoid giving financial advice.
Financial product advice
The law: Financial product advice is a recommendation or statement of opinion which is intended to influence, or which could reasonably be regarded as being intended to influence, a person making a decision in relation to financial products.
You can share factual information that describes the features or terms and conditions of a financial product (or a class of financial products) without giving financial product advice. However, if you present factual information in a way that conveys a recommendation that someone should (or should not) invest in that product or class of products, you could breach the law by providing unlicensed financial product advice.
If you’re an influencer who receives benefits or payment for your comments in relation to financial products, you’re more likely to be providing financial product advice because it indicates an intention to influence the audience.
Case Study: ASX Wolf
ASIC took action against Tyson Schulz, “ASX Wolf”, in December 2021 for contravening s911A of the Corporations Act – Need for an Australian Service Licence.
Between March 2020 and November 2021, Mr Schulz delivered training courses and seminars about ASX trading, gave free ‘tips’ on shares and collected fees via subscriptions and memberships for these services.
Unfortunately, Mr Schulz did not have a financial service licence.
While Mr Schulz may not be subject to the same rules, regulations and obligations as advisers, the view is that:
“If you’re an influencer who receives benefits or payment for your comments in relation to financial products, you’re more likely to be providing financial product advice because it indicates an intention to influence the audience.”
Managing the Risk
- Implement communication policies: Firms should establish guidelines for advisers on acceptable communication parameters and channels and ensure all client interactions are recorded. These guidelines should explicitly outline the limitations of these interactions, including what can and can’t be passed through the channel, in order to avoid personal and financial information being intercepted.
- Training and awareness: Advisers must understand the risks of providing advice via informal platforms. Understanding What is advice vs. what can be perceived as advice, is critical, and advisers need to be aware of what will be deemed as inappropriate behaviour.
- Use compliance-approved tools: Secure, monitored messaging platforms can help firms stay compliant while maintaining client engagement. In short, advisers might want to avoid using social media altogether when interacting directly with a client.
General vs. Personal Advice: The Digital Advice Trap
“If you don’t know me by now
Simply Red (If you don’t know me by now)
You will never, never, never know me”
The Challenge
The distinction between general and personal advice still remains a grey area, particularly in digital tools.
ASIC is quite clear in RG175, which clarifies that personal advice considers a client’s objectives, financial situation, and needs, whereas general advice does not. In order to provide personal advice, an adviser needs to ‘know their client’. Digital tools often collect a client’s information and provide tailored insights that may cross the boundary into personal advice.
An adviser is required to collect information prior to providing personal advice. However, in some instances, the client may not require personal advice, and the best fit may be to provide some general information/advice. The adviser can manage this situation through their discussions, notes, relevant warnings, etc. In digital advice, this may be more difficult to manage.
If the digital tool has already collected information about the client’s relevant circumstances, but only provides general information/advice afterwards, does the client understand the difference? Could they interpret the general information/advice as personal advice?
ASIC’s focus remains on the distinction between personal and general advice and how it is misunderstood, especially when the delivery of it feels ‘tailored’.
ASIC has also stated that the term or disclaimer that the advice was general in nature “did not make any measurable difference” to consumers.
At present, we don’t have a case study in which personal advice was provided under the guise of general advice via a robo-advice scenario. However, a case involving two companies in the Westpac Group provides insight into what is expected, which may assist licensees in building and testing their robo-advice systems.
Between 1 January 2013 and 16 September 2016, Westpac increased its FUM by approximately $650 million through two phone-based campaigns. The campaign was designed to provide ‘general advice’ to customers on rolling their superannuation funds into Westpac-branded products. All the phone calls were similar in that they included a ‘general information warning’ that personal financial needs would not be considered.
However, information was sought (including objectives etc.) and the advisers then offered to assist the member in bringing the member’s super accounts together. There was no mention of the potential negative factors or any offering of personal advice.
Managing the Risk
- Clear disclaimers: Digital tools must explicitly state when they are providing general or personal advice. This needs to be clearly communicated to the client and some form of acknowledgement wouldn’t go astray.
- Client data restrictions: If a tool collects personal financial information, it may be providing personal advice and should be regulated accordingly. When providing information/advice, consideration needs to be given to how that information is used and stored.
- Regular compliance reviews: Firms should periodically assess whether their digital tools remain within regulatory boundaries. This critical component of the process will ultimately protect the business by identifying any issues before they become systemic.
A Proactive Approach to Compliance
Regulatory grey zones in financial services create challenges, but licensees and advisers can mitigate risks through clear policies, robust oversight, and proactive engagement with ASIC.
By implementing strong compliance frameworks, financial services providers can navigate uncertainty while maintaining trust and regulatory integrity.
Firms that wait for explicit ASIC guidance risk falling behind. Instead, they should adopt best practices based on legal principles, industry standards, and a commitment to ethical financial advice.
We’re here to help.
If you found this interesting, you might enjoy reading:
- Avoid the AI Trap: How to Stay Compliant & Ahead of the Game
- Personal Information Compliance for AFS Licensees
- The Future of Advice in a Changing Regulatory Environment
Frequently Asked Questions
1. What are the key compliance risks associated with AI-driven financial advice?
AI-driven financial advice, such as robo-advisers, poses compliance risks due to potential failures to meet best interest duties and ensure advice suitability. Regulators, including ASIC, expect financial service providers to regularly monitor and test AI-generated advice to ensure its quality and appropriateness.
2. Can financial advisers communicate with clients via social media or messaging apps?
While advisers can engage with clients on social media or messaging platforms, doing so carries compliance risks. Issues such as record-keeping failures, misleading advice, and data security concerns must be managed through clear communication policies, adviser training, and compliance-approved tools.
3. How does ASIC differentiate between general and personal financial advice?
ASIC defines personal advice as recommendations tailored to an individual’s financial situation, while general advice provides broad insights without considering personal circumstances. Digital tools that collect client data but claim to provide only general advice may unintentionally cross into personal advice territory, increasing regulatory scrutiny.
4. What compliance measures should firms take when using AI in financial advice?
Firms using AI-driven financial tools should:
- Establish policies for monitoring and testing AI algorithms.
- Ensure human oversight to validate AI-generated recommendations.
- Maintain transparency by clearly disclosing whether advice is human- or AI-generated.
5. How can financial influencers (finfluencers) avoid regulatory breaches?
Financial influencers must be cautious when discussing financial products online. If they receive payment or benefits for promoting financial products, ASIC may classify their content as financial advice, which requires an Australian Financial Services Licence (AFSL). To avoid breaches, finfluencers should refrain from providing specific investment recommendations.
