Recommending products without expert research - new Code guidance

The guidance is the first issued by the FMA on how it will apply and enforce the Code of Professional Conduct for Financial Advice Services which comes into force on March 15. It deals with Code Standard 3 which requires financial advisers to ensure that their advice is suitable for the client, with regard to its nature and scope. Suitability should include having reasonable grounds for the advice.

The FMA notes the challenge of giving financial advice about high risk, complex or novel financial products when it is difficult to access information to support reasonable grounds, for example advising on IPOs or smaller market cap stocks.

It says it does not intend to discourage advisers from giving opinions or recommendations not backed by expert research as this could result in New Zealanders having less access to possibly beneficial financial advice and could also lead to lower levels of interest, and liquidity, in some products. But the requirement for reasonable grounds must be met, although what is reasonable will depend on each case and context.

This means that if an adviser does not have time, capacity, or resources to provide financial advice on more complex or novel products, the FMA expects the adviser to make it clear to the client that the scope of their services does not cover those products.