Investment advice process and suitability
The process
Discovery, analysis, advice design, presentation with disclosure, implementation, documentation and review. Before any recommendation, confirm nature and scope: which products, which goals, whether the advice is personalised or class advice, and what is excluded. Scope limits are legitimate only when recorded and explained to the client.
Suitability
Advice must suit the client's goals, financial situation, risk profile and other relevant circumstances, and must sit within the agreed scope. If information is missing, obtain it or decline to recommend: a recommendation without a risk profile is not defensible. Switching advice, such as moving KiwiSaver funds or replacing a bond, is financial advice and carries the same duties; the cost of the switch belongs in the suitability analysis.
Worked example
A client asks whether to move her KiwiSaver from balanced to growth. The adviser's scope covers KiwiSaver only. The adviser gathers balance, contribution rate, a planned first-home withdrawal in four years, and risk capacity. Because the withdrawal is four years away, the adviser recommends keeping the home-deposit portion in a lower-risk fund and directing only new contributions to growth. The reasoning is documented alongside alternatives considered and the client's stated preference for security.
Traps
- Presenting a product as just information when the client reasonably relies on it.
- Leaving scope undefined until a complaint arises.
- Recommending a switch without comparing total costs and any benefits lost.
- Recording the recommendation but not the client's decision or reasons for deviating from it.