Questions about limited advice

An FMA guidance note that says it aims to assisted AFAs who provide personalised advice that is limited to a particular subject matter may not be very helpful for those in the field.

Tuesday, December 17th 2013, 6:55PM

by Susan Edmunds

The FMA said a survey last year showed concern around access to advice for the small to middle end of the investor market.

“FMA’s own monitoring and surveillance activities reinforce the concern around access to advice. Advisers are often unclear about the paperwork and compliance requirements for limited advice. Frequently AFAs translate the requirements of the Act or the Code to require an excessive level of additional paperwork to ‘cover all the bases’. This adds to the costs of providing advice services, and clients often have no interest in reading it.”

It says the guidance note explains how AFAs can provide limited personalised advice in a way that still complies with the Code of Professional Conduct for Authorised Financial Advisers.

The FMA says that the paramount standard remains the need to put the interests of clients first and to act with integrity. It says code standard eight, which requires AFAs to make reasonable inquiries to ensure he or she has an up-to-date understanding of the client’s financial situation, with regard to the service provided, is also relevant.

AFAs are told that they can provide limited personalised advice that is consistent with the Code by:
- Using their judgement and training to determine whether by limiting the scope of advice, they can still meet their legal obligations.
- Adjusting the level of their inquiries to reflect the nature of the advice provided.
- Implementing systems to help decide whether limited personalised advice can be provided in a way that meets legal obligations.
- Communicating clearly to the client the type of advice service that is being offered and stating what is not provided.

But industry commentator Russell Hutchinson said the note offered very little reassurance for advisers who were operating in that space.

He said many advisers would not even know whether the advice they offered counted as “limited”. “We don’t yet have a pull picture of what full advice is because it’s a principles-based regime, what’s perfectly safe for one client might not be for another.”

He said the note seemed to say that advisers could offer limited advice, but offered no real safe harbour for those who did. Most advisers would respond by opting only to offer class advice when they could not offer full advice, he said.

“It’s really difficult for advisers to find safety in the guidance note.”

Hutchinson said the FMA’s style seemed to be that where there was a grey area, it erred on the side of making the rules tougher.
You can find the full guidance note here

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