A financial adviser regulated under the Financial Advisers Act 2008 (the Act) is someone who provides financial advice, broker services or an investment planning service. (s9).
The scope of the definition of “investment planning service”, and its application to the services provided by advisers relating to products stipulated as category 2, is a key issue for advisers in the new regulatory framework being implemented this year across the financial services industry.
A key clarification has been made to the definition of investment planning services, previously termed financial planning services.
Prior to the change, advisers who provided advice on Category 2 products only (for example risk or residential mortgages), were required to be Registered (RFA) but not Authorised (AFA) unless they provided a Financial Planning Service (FPS). If the adviser provided a FPS, Authorisation was mandatory.
Given that the interpretation of FPS was very broad and not product specific, a large number of advisers, including the majority of risk and residential mortgage advisers, were captured and therefore needed to be Authorised.
The amendment narrows the scope to a focus on investment activity. Because the new definition specifically focuses on investments, advisers whose activities are focused purely on risk or residential mortgages are excluded from this definition. Therefore, risk / mortgage advisers who do not advise on investments (or any other category 1 products) will not be required to be Authorised.
This is the case even if adviser undertakes a comprehensive review of a client’s situation, including their financial position. (assuming they dealt with Category 2 products only).
In addition, advisers who work for a qualifying financial entity and sell that entity’s products only, can deliver financial adviser services and comply with the regime without needing to be Authorised.
To be captured within the investment planning service definition, the advice must contain the following:
- The fact that such services should be directed at investment goals;
- The idea that it should involve a plan (rather than just a simple recommendation or opinion); and
- The fact that the adviser should consider the overall financial situation (rather than simply some aspects of their finances).
Definition
Investment planning service is defined as follows:
A person (A) provides an investment planning service if A designs, or offers to design, a plan for an individual that—
- Is based on, or purports to be based on, an analysis of the individual’s current and future overall financial situation (including his or her investment needs) and identification of the individual’s investment goals;
and
- Includes 1 or more recommendations or opinions on how to realise those goals (or one or more of them).