Investment planning and financial advice

What is investment planning?

Designing an investment plan is a form of giving financial advice which takes the client’s overall financial situation into account and addresses the client’s investment goals. Such a plan will include at least one recommendation or opinion about how the client can put themselves in a position to achieve one or more of their investment goals.

What does the Act tell us?

The Financial Markets Conduct Act 2013 (FMC Act) sets out what is involved in designing an investment plan. Read Section 431C(1)(c) of the FMC Act. 

“Investment goals” is not defined in the legislation, however it must relate to some form of investment, i.e., something that would gain interest, income, or profit or other financial return for the client. Recommendations in an investment plan may be general or specific.

Can an investment plan include investments that are not financial advice products*?

Yes, an investment plan may include recommendations about how a client could achieve their investment goals through acquiring or disposing of both financial advice products and non-financial advice products.

Common investments in non-financial advice products include real estate and other products that are not directly regulated by the FMC Act, such as virtual assets, collectibles or precious metals.

Including non-financial advice products in an investment plan does not affect the duties owed by a financial adviser under the FMC Act and the Code of Professional Conduct for Financial Advice Services (the Code). Go the Financial Advice Code website

An investment plan can also set out a strategy on how the client can free up sufficient money to put themselves in a position to achieve their investment goals, which might involve recommendations on how the client can repay debt and reduce spending.

How do I know if my services are seen as designing an investment plan?

If your advice is based on a review of the client’s overall current and future financial situation and investment goals, and you have included at least one recommendation or opinion on how the client can achieve those goals, then you may be offering an investment plan. Some examples of what this may include:

• advertising a service that includes recommending or giving tailored feedback about certain investments (including non-financial advice products such as real estate);
• offering to build an investment portfolio for a client or to review an existing portfolio;
• offering to create an investment plan for a client, even for no charge,
• provided that in each case above, the advice is based on the client’s overall current and future financial situation and investment goals, and tailored to achieving those goals.

An investment plan for a client may include multiple recommendations, some of which may be general (e.g. what the allocations for certain types of investments within a portfolio should be) and some of which may be specific to an investment (e.g. an opinion about purchasing, selling or holding particular shares or real estate).

Services that are not focused on how the client can achieve their investment goals will not constitute designing an investment plan. These could include budgeting services, insurance planning services, credit planning services, and estate planning services.

Can I include recommendations to purchase insurance products and take on debt in an investment plan?

An investment plan may include advice on how the client can achieve their investment goals through acquiring or disposing of financial advice products that are not investments. This would include, for example, insurance products which can mitigate the risks of an investment, or loans which can be used to acquire investments.

A service that includes advice on products such as insurance or loans is still an investment planning service if it meets the criteria above. The focus of the plan is still to help a client gain interest, profit or financial benefit.

Who can design an investment plan?

Designing an investment plan is a form of giving financial advice. Financial advice may be given only by someone who holds a financial advice provider licence or by a person providing financial advice on their behalf. Anyone designing an investment plan will need to meet the competency requirements specified in the Code.

It is a contravention of section 431G of the FMC Act for a person to purport they are lawfully able to provide financial advice (or a particular kind of financial advice) if that is not the case.

Useful links

• Find out more about how to become a licensed financial adviser and duties owed under the FMC Act
• Read more about the Code of Professional Conduct for Financial Advice Services