Commission to clarify definition of financial planning service

The Securities Commission says it recognises that financial advisers are confused about the Financial Advisers Act definition of a "financial planning service" and it is working on giving the definition more clarity.

Friday, January 29th 2010, 7:59AM 2 Comments

by Jenha White

Angus Dale-Jones, Securities Commission director supervision, says the Securities Commission is working with the Ministry of Economic Development to reduce uncertainty.

“Our preference is to issue guidance to clarify the definition of a financial planning service in the law as it exists rather than change the law, but no final decision has been made yet.”

Many financial advisers have been concerned that the definition is too broad as the Securities Commission and the Code Committee have had different views on what it entails.

The commission originally stated that each financial adviser would have to decide for themselves whether their activities fell within the financial planning service definition in the legislation - that is, if they:

analyse a client's financial situation
identify their financial goals
develop financial options for realising those goals.

In an earlier comment Dale-Jones had said: "If they're unsure, it's probably safer to become authorised." He had also said the Commission would not consider a basic needs analysis for a particular product as providing a financial planning service.

However on the contrary Code Committee chairman Ross Butler says if you are undertaking any sort of client needs analysis as a basis for client recommendation, then it would be hard to see how any reasonable person might regard that as anything but advice, falling within the Act definition.

“Even if people use the category two definition to avoid becoming an authorised financial adviser (AFA), the “financial planning service” definition is a catchall in the Financial Advisers Act.”

Chapman Tripp partner Tim Williams says that although the Securities Commission stated it would not consider a basic needs analysis for a particular product as providing a financial planning service, in its current form it is still possible for a dispute resolution service or the Courts to apply a broader, more literal interpretation.

“It’s good to hear that the Securities Commission is listening to what financial advisers are saying and making changes.”

Dale-Jones says he is aware that there is a lot of uncertainty around the financial planning service definition and particularly around needs analysis.

“A needs analysis is a fundamental part of financial advice and it doesn’t mean you automatically provide a financial planning service, so we’re trying to clarify when a financial planning service is provided.”

He says needs financial advisers have to give a needs analysis as it is an important part of professionalism in the industry. “We have been working on the financial planning services definition in the last few weeks and it is a priority for us to give industry certainty on this point as soon as possible.”

Jenha is a TPL staff reporter. jenha@tarawera.co.nz

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Comments from our readers

On 29 January 2010 at 2:00 pm Dr Mike Naylor said:

A vital part of the regulation process is to encourage advisers to behave in a professional manner. This means that when a complex product like life or disability insurance is sold the adviser should carry an apporpriate level of needs analysis. The problem with a narrow definition is that it will encourage advisers to refuse to provide any form of needs analysis or advise, so as to avoid category 1. This is not in the interests of consumers so is ultimately unsustainable in terms of regulation. In Australia complex insurance products were bought inside strict regulation after a review. The same is inevitable here.

On 29 January 2010 at 4:53 pm Giles Thorman said:

I will be very interested to see how the banks get around this one. For years they have had staff pushing mortgage protection policies that are in fact quite complex (they include life assurance, income protection and Total and Permanent Disability benefits) with very little training.
I have no problem being in competition with the banks, I would just ask that there is a level playing field.
If the banks sell ANYTHING other a term life policy then their staff should have to complete the same level of training that brokers and agents will have to, and also complete fact finds etc.
We shall see.