CPD: Informed consent – when disclosure becomes true understanding

Advisers need to be able to explain the difference between disclosure and true informed consent.

Introduction

Few issues are as central to effective, compliant financial advice as informed consent.

Aside from being a foundational element of financial consumer protection, clients who understand the advice they receive are more likely to appreciate the value of that advice, are less likely to complain about it, and are likely to demonstrate higher levels of satisfaction and loyalty.

On the flipside, when truly informed consent is absent, trust is lost and consumers are at greater risk of financial harm, with no example being more powerful than the recent collapse of the First Guardian and Shield superannuation funds^[1].

Among the many aspects of this scandal being scrutinised is a so-called “negative consent” model under which clients were sent Records of Advice (ROAs) proposing to switch super into new funds, with instructions that ‘silence or failure to respond’ would be taken as consent^[2]. Unsurprisingly, Regulators, licensees, and consumer advocates have raised profound concerns about whether such practices meet the legal and ethical standard of informed consent.

For advisers, this moment is a learning opportunity. It forces the profession to revisit what informed consent really means, how it should be evidenced, and why it matters not only for compliance but also for long-term client confidence.

In this article, we will examine the concept of informed consent, and how it differs from mere disclosure. The regulatory approach to informed consent will be explored, including requirements around advice documents and fee consents. Emerging consent challenges, including those involving AI and vulnerable clients will also be examined. Advisers will ultimately be given a practical framework for evidencing client understanding, to help them deliver more compliant, effective, and valued advice.

Informed consent as a consumer protection

The concept of informed consent – so central to compliant advice – is borne out of the knowledge asymmetry that automatically exists in over 99% of adviser – client relationships. The client, by virtue of their comparative lack of knowledge about increasingly complex financial products and regulations, is immediately at a disadvantage in any advice interaction, and would be vulnerable to that knowledge gap being exploited.

In financial advice, a range of consent requirements ensure that the client understands and consents to:

• the advice being given
• the scope of that advice (including what is out of scope)
• the information that advice is based upon
• the costs associated with the advice and any product/switching related fees
• the risks associated with that advice
• the redress mechanisms available to them
• the remuneration the adviser will receive and any potential conflicts.

Failure to satisfy any one of these requirements – even inadvertently – increases the risk that the advice is not in the client’s best interests and increases the likelihood of consumer harm and client complaints.

Case Studies – AFCA determinations

Lack of informed consent features prominently in complaints to AFCA, with a common theme being the misclassification of investor risk profiles.

In case number 495186 for example, a client was misclassified as a growth investor. While the husband (Mr V) agreed with the record in the Statement of Advice (SOA) that he wished to retire at 60, Mrs V disagreed with the SOA recording that she also wished to retire at 60. According to Mrs V she had always expressed a desire to retire at age 55. Shortening the investment time frame by 5 years had a material impact on the appropriate risk profile for that client, and AFCA (FOS) upheld the client’s complaint (about investment losses) on the basis that the advice was not appropriate and while consent was obtained (in the form of an Authority to Proceed), informed consent was not^[3].

Similarly, in case number 12-00-1028323, AFCA found against a firm whose advice resulted in a client being ‘significantly overexposed to growth assets’. In their published determination, AFCA noted:

“[The clients] were still overexposed to growth assets and risk by following this advice. This placed a higher duty of responsibility on [the adviser] Mr VC to ensure he explained those investments and risks to the complainants in a way they could understand. It is not clear to the panel the complainants undertook this this additional risk with prior informed consent.”^[4]

Noddy syndrome – informed consent, or just consent?

Advisers can’t rely on the fact they disclosed something, or that the client signed something, as evidence of informed consent. Here the concept of ‘Noddy syndrome,’ perhaps best encapsulates the difference between informed consent and mere consent. Noddy syndrome is a term coined by Dr. John Lloyd, a consultant neuropsychiatrist specialising in elderly care. In a 2009 court case – Nicholson v Knaggs – Lloyd described how he used the term to explain the tendency of elderly individuals to simply agree with suggestions to avoid causing trouble or inconvenience^[5].

Informed consent: the legal and ethical obligations

While consent is about ‘permission’, informed consent is about permission AND genuine client understanding, and the obligations on advisers to facilitate and evidence this understanding are comprehensively reinforced – explicitly and implicitly – across the Corporations Act, multiple ASIC guidance documents, and the Code of Ethics.

The Corporations Act

Several parts of s 961 of the Corporations Act^[6] implicitly underpin the concept of informed consent, including:

• s 961B: Best interests’ duty
  Advisers must “act in the best interests of the client in relation to the advice”. While 961B does not use the phrases ‘informed consent’ or ‘client understanding’, the wording around the Safe Harbour test makes clear that acting in the best interests of clients requires gathering enough information from the client and giving appropriate advice.
• s 961G: Appropriate advice duty
  The advice must be appropriate to the client, having regard to their circumstances. Central to ‘appropriateness’ is that the client has been provided information to understand the recommendation.
• s 961H: Warning if advice incomplete
  Requires a warning if the advice is based on incomplete or inaccurate information. This supports the idea that clients must understand any limitations of the advice before they can rely on it.
• s 961J – Conflicts priority rule
  Requires advisers to prioritise the client’s interests over their own when conflicts exist. Numerous cases (including the recent Count class action^[7]) show that courts will only find conflicts defensible if clients have given informed consent.

Staying with the Corporations Act, s 947 – dealing with SOAs – more directly addresses the importance of disclosure (verbal and documented) that is clear, concise and effective (i.e. understandable).

ASIC summarises these specific requirements thus:

“The Corporations Act requires persons who provide financial product advice to retail clients to comply with certain conduct and disclosure obligations. These obligations are designed to ensure that retail clients receive good quality advice about financial products and are able to make informed decisions about that advice.”^[8]

ASIC guidance

The core ASIC instruments dealing with client understanding and consent are RG 175, which deals with conduct and disclosure, and Information Sheet 267, which includes an example SOA as an attachment.

In paragraph 161 of RG 175, ASIC explicitly references client comprehension as an outcome of effective disclosures:

“(d) good quality advice educates and equips clients to make informed decisions about their finances, including whether to accept and implement the strategies and products recommended to them; and

(f) good quality advice involves good communication—including SOAs and verbal communication.”^[9]

Corporations (Relevant Providers—Code of Ethics) Instrument 2023

Formerly governed by FASEA, the adviser Code of Ethics has now been embedded into the Corporations Act^[10]. The Code makes informed consent an explicit ethical duty, elevating it beyond regulatory compliance into a professional standard.

• Standard 4 requires advisers to act for a client only with the client’s free, prior and informed consent.
• Standard 5 strengthens this obligation by requiring advisers to be satisfied that the client understands the advice, including the benefits, costs, and risks of the recommended products. This shifts responsibility from the client to the adviser: it is not enough to provide disclosure; advisers must actively test for and document comprehension.
• Standard 7 requires that clients give free, prior and informed consent to all benefits received in connection with acting for them, including fees, commissions, and other forms of remuneration. This standard makes it clear that advisers must go beyond box-ticking, making sure clients know what they are paying, why, and what they are receiving in return.

AFCA Guidance on SOA adequacy and informed consent

In 2022 AFCA publicised its approach to assessing the adequacy of Statements of Advice, explicitly addressing their importance in demonstrating informed consent:

“The question of whether a retail client has given their informed consent to take up the financial firm’s advice is a critical issue in most financial advice complaints handled by AFCA.

Where this issue is raised, we will look at all of the disclosures made by the financial firm to the client. A key document is the SOA.

If the information in the SOA is not ‘clear, concise and effective’, then AFCA might find that the client did not understand the advice and the financial firm had failed to secure the client’s informed consent to take up the advice.”^[11]

To be clear, negative consent is not informed consent

The negative consent approach, which has come to light as part of the First Guardian and Shield scandal, is effectively a form of opt out, where the companies in question decided to interpret silence as consent, in this case for their superannuation to be transferred.

Such an approach is clearly inconsistent with the expectations of ASIC and AFCA, that consent is something that is actively given by the client – rather than merely being the absence of an objection – and that is evidenced and current.

Fee consents – recent changes

A special subset of the discussion around consent in advice relates specifically to life insurance remuneration and ongoing fees.

The Delivering Better Financial Outcomes (DBFO) Act introduced important changes to how advisers must manage ongoing fee arrangements and client consents. ASIC’s updated guidance¹² makes clear that advisers are still required to obtain written fee consents, but these now sit within a simplified framework designed to reduce red tape. From 1 July 2024, advisers no longer need to issue annual Fee Disclosure Statements (FDS), with the fee consent form becoming the central document that demonstrates a client’s agreement to ongoing advice fees.

In addition, ASIC has clarified that under the DBFO changes, informed consent requirements extend beyond ongoing fees to certain insurance commissions. New FAQs released by ASIC – via INFO 292¹³ – highlight that advisers must obtain a client’s informed consent before receiving conflicted remuneration in the form of insurance commissions, even where exceptions still allow commissions under the law. According to ASIC, ‘informed’ means the client must actively understand the nature of the commission, its impact, and available alternatives before the adviser can lawfully receive it.

Areas of elevated concern and challenge

Evolving demographic and cultural trends, along with the rapid technological change, has created new areas of concern with regards to client consent.

Certain individuals and groups are at heightened risk of the ‘information asymmetry’ that informed consent is intended to correct. These include people who are vulnerable because of their lack of education or poor physical and/or mental health. Clients without a competency in English (around 5% of the population in capital cities¹⁴) are also naturally disadvantaged by the advice process, with disclosure documents rarely translated into other languages.

In both cases, advisers must be extra vigilant around gaining and documenting this consent. Calling on interpreters, having core advice documents translated, and teach-backs (where clients are asked to explain the recommendations back in their own words) are all relevant strategies in these circumstances.

Technology brings its own challenges too. With the majority of client meetings now virtual, advisers may find it harder to judge the non-verbal cues that indicated whether client comprehension is present – or lacking. Recordings, transcripts, and pre-confirmation summaries can all be used to check and document client understanding.

An even bigger technological disruption is of course the rise of Artificial Intelligence, and the issue of clients consenting to advisers using AI has been debated hotly in recent times.

The compliance risks presented by the use of AI include lack of consent over client conversations being recorded, having the data used in a third-party system, along with storage security. This prompted one compliance expert to argue that gaining informed consent from clients when using AI in the advice process is essential, and “advisers could risk a breach of the Code of Ethics if they don’t”^[15].

Assured Support managing director Sean Graham takes a different stance, arguing that rather than seeking consent, advisers should not use client data in AI systems. “At the end of the day you’re a trustee of that information and we know there is no absolutely safe repository of information,” Graham says.

“Whether it’s free or the paid version I would still not use personal information. The downside far outweighs the upside. I’m just naturally conservative about this because we’ve seen so many data breaches over the past couple of years.”^[16]

Practical ways to achieve and evidence informed consent

For advisers, the key to informed consent is not only securing agreement but also being able to demonstrate that the client understood the advice.

A best practice framework might include:

• Simplified communication
  • Use plain-language one-page SOA/ROA summaries (what, why, costs, risks, alternatives).
  • Apply the teach-back method: ask clients to restate advice in their own words; document this in file notes.
• Capture affirmative consent
  • Signed SOAs/ROAs, fee consents, and insurance consents.
  • Back up with contemporaneous records: meeting notes, recorded confirmations, or client acknowledgement emails.
• Support vulnerable or non-English speaking clients
  • Use interpreters or translated docs.
  • Offer follow-up calls to confirm understanding.
• Leverage digital tools carefully
  • Use screen-sharing, transcripts, or recordings to evidence comprehension.
  • Ensure privacy and data security when storing records.
• Systemise compliance
  • Diarise fee consent renewal dates.
  • Send reminders with clear “accept/decline” options.
  • Cross-check trustee requirements (requirements may differ across funds).
  • Provide post-advice confirmation letters outlining actions taken and complaints pathways.

In short, consent must be affirmative (proactive), current, and specific, never implied or assumed.

Conclusion

Informed consent should not be a compliance-led afterthought, it is the cornerstone of advice that is both compliant and genuinely valued by clients. As recent case studies and regulatory guidance show, disclosure alone is insufficient. Advisers must go further, ensuring that clients actively understand the advice, the risks and costs involved, and the associated remuneration structures. When advisers achieve this, they not only meet fulfilling the obligations and expectations set out by the Corporations Act, ASIC, AFCA, and the Code of Ethics, but they also protect their clients from harm and themselves from disputes.

Ultimately, the credibility of the advice industry depends on treating informed consent as the hallmark of professionalism rather than a compliance box to be ticked. Advisers who embed clear communication, affirmative consent practices, and robust record-keeping into everyday workflows will build stronger, more trusting client relationships.

Take the FAAA accredited quiz to earn 0.5 CPD hour:

CPD Quiz

The following CPD quiz is accredited by the FAAA at 0.5 hour.

Legislated CPD Area: Regulatory Compliance & Consumer Protection (0.5 hrs)

ASIC Knowledge Requirements: Regulatory Environment (0.5 hrs)

please log in to start this quiz

———–

References:
[1] https://www.asic.gov.au/about-asic/news-centre/find-a-media-release/2025-releases/25-184mr-asic-takes-further-action-against-ferras-merhi-over-first-guardian-and-shield-superannuation-advice/
[2] https://www.ifa.com.au/news/36060-bring-liability-closer-how-individual-licensing-could-help-limit-advice-fallout
[3] https://www.afca.org.au/sites/default/files/2019-12/determination-495186.pdf
[4] https://my.afca.org.au/searchpublisheddecisions/kb-article/?id=ced15f99-53cd-ef11-b8e8-00224893f91b
[5] https://www.adviservoice.com.au/2015/11/elder-abuse-planners-need-to-recognise-the-warning-signs/
[6] https://www5.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s961b.html
[7] https://www.ifa.com.au/news/35835-count-class-action-decision-a-warning-for-advisers-says-legal-expert
[8] https://download.asic.gov.au/media/pqpe0hwc/rg175-published-21-november-2024-20241219.pdf
[9] Ibid.
[10] https://www.legislation.gov.au/F2019L00117/latest/text
[11] https://www.afca.org.au/media/304/download
[12] https://www.asic.gov.au/about-asic/news-centre/news-items/asic-releases-new-and-updated-guidance-in-response-to-the-dbfo-act/
[13] https://www.asic.gov.au/regulatory-resources/financial-services/giving-financial-product-advice/faqs-informed-consents-for-insurance-commissions/
[14] https://profile.id.com.au/australia/speaks-english
[15] https://www.professionalplanner.com.au/2024/10/lack-of-informed-client-consent-for-ai-creates-code-conundrum/