Regulatory and ethical framework for investment advice
Who may give advice
The framework is the Financial Markets Conduct Act 2013 (FMCA), reshaped by the Financial Services Legislation Amendment Act 2019. Since 15 March 2021 advice can only be given by a financial adviser or nominated representative working under a Financial Advice Provider (FAP) licence issued by the FMA. The licence sits with the business, not the individual. Advisers must also be on the Financial Services Providers Register, belong to an approved dispute resolution scheme, and follow the Code of Professional Conduct for Financial Advice Services.
The Code has two halves
The ethical standards are client interests first, care/diligence/skill, and good faith. The advice standards cover nature and scope, conflicts of interest, and suitability. Supporting FMCA duties include disclosure of fees, remuneration and conflicts, record keeping, and avoiding misleading conduct. The FMA monitors and can act; Code complaints can go to the Financial Advisers Disciplinary Committee.
Worked example
A firm recommends a fund that pays it a 0.30% trail commission. Client-first does not ban commissions, but the adviser must disclose the commission and its dollar amount, explain how it could bias the recommendation, and show on file that the product was chosen for fit, cost and risk rather than the commission. A file reading only recommended Fund X fails on both conflicts and suitability.
Traps that cost marks
- Thinking the individual adviser holds the FAP licence.
- Treating FSPR registration as equivalent to licensing.
- Assuming the Code is only about ethics; the advice standards are enforceable too.
- Vague disclosure such as we may receive commissions, instead of specific amounts.