Commission to clarify definition of financial planning service

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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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