What type of advice is ‘financial advice’?
April 11th, 2010
There are as many opinions on what to do with your money as there are people with functioning brains. Even your children have an opinion.
There are as many opinions on what to do with your money as there are people with functioning brains. Even your children have an opinion.
So what good can a financial adviser do for you with such an abundance of advice?
The New Zealand Government have created three prposed definitions of financial advice in their new code of conduct for advisers, due to become an inforce regulation at the end of this year. There are three main proposed definitions*. I’ll simply list and define them here.
Financial adviser service:
“giving financial advice or providing a financial planning service”
Financial advice:
“making a recommendation, or giving an opinion or guidance, in relation to acquiring or disposing of (including refraining from acquiring or disposing of) a financial product”
Financial planning service:
“a service that analyses an individual’s current financial situation, identifies his or her financial goals, and develops financial options for realising those goals”
Put like that they sound expensive
In the past a lot of financial advice was provided free of charge based on the assumption that the person providing the advice would earn commission at some point in the relationship. There is now some talk that this is not going to a safe assumption in the future.
Regulation is adding work to the Adviser’s plate.
For example, if I, as a financial adviser make a comment about you in regard to the question, “Should you have a KiwiSaver product in your general financial plans?”, there are a number things to find out. For example, it is now assume that:
I know alot about your situation. For example:
1) Do you own a home, are you in a position as if you’d never owned a home?
2) Do you have employment?
3) Are you a citizen or a permanent resident?
4) Can you afford the minimum contributions?
5) What are your goals for having a KiwiSaver plan?
6) Do you expect it to be your only savings plan?
Is this rediculous?
No. Those are basic questions I would have asked before adviser regulation came along.
So what changed to add work?
Now the adviser has a duty to provide a comprehensive selection of documents.
These required documents include, a ‘Statement of Advice’, which puts the answer to those questions down on paper. And there is no way to contract out of these questions. I as a financial adviser have to ask them.
Isn’t that normal?
If all you did with a financial adviser was elect to take up a single KiwiSaver plan, a comprehensive summary of your situation at the time you took out the KiwiSaver may not have been written into the statement of advice in the past.
Expect more questions from your adviser. Expect more cost too.
*I’m grateful for the summary provided by the Institute of Financial Advisers, New Zealand.
Photo source.
A disclosure statement is available, upon request and free of charge.
Categories: Financial Advice, Financial Adviser Regulation
