Confusion persists about limited advice

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Confusion still exists over what constitutes limited advice – but moves to clarify it may benefit large institutions and banks more than independent advisers.

Tuesday, January 28th 2014, 6:00AM 5 Comments

by Susan Edmunds

At the end of last year, the Financial Markets Authority issued a guide to offering limited advice.

It said it was concerned that New Zealanders were not able to access good quality personalised advice, and advisers who were unsure about the compliance requirements for limited advice were doing an excessive amount of paperwork to cover all the bases.

Limited personalised advice is any advice that is limited in some way, either because of the adviser’s business model, limitations imposed by the client or limitations where a class service is required.

Banks stand to gain from a clearer understanding of the requirements of limited advice, because their large customer bases can make it hard for them to offer comprehensive advice to every client, every time.

The FMA said advisers could limit the scope of their advice if they identified that the client’s circumstances suited it, identified the subject matter of the advice and the client’s reasons for receiving limited personalised advice, and identified whether limiting the scope of their advice would still put the client’s interests first.

It gave the example of an AFA working for a bank QFE, who deals with a client in a default KiwiSaver fund, who wants to talk about choosing a fund that is right for him. He does not want to talk about his other investments, credit cards or insurance and the AFA is able to give limited personalised advice.

Jeremy Muir, of Minter Ellison Rudd Watts said limited advice was a controversial topic that was not clear cut or straightforward. He said from an independent adviser’s perspective, their concern about the guidance note was likely that the banks and larger institutions were likely to be able to develop more systems to allow them to give more limited advice more easily.

Adviser Michael Dowling, who is on the board of the IFA, said a lot would depend on an adviser’s business structure.  “In my mind, all advice is limited to a certain extent of what the clients wants you to do for them.”

He said advisers needed to make it clear to clients that if they did not disclose relevant information, the advice would be affected.

He said bank staff working in a QFE would receive direction from the QFE in time. “If you’re in a call centre and you give advice under a QFE, they’ll determine the limits.”

Dowling said the industry always had to wait to see how issues such as this panned out, because of the principle-based approach to regulation. “They can’t be prescriptive.”

Advisers would have to work out how the guidance applied to their own circumstances, he said.

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