Technical Note No. 1/2015 - Clarification On Scope Of Financial Planner’s Advice

01 Apr 2015

Financial Planners (FPs) play an integral role in the Malaysian capital market especially in light of changing market conditions, increased product sophistication and rising living standards.

It is FPs that provide financial plans to enable clients to meet their financial goals by proposing strategies on how to invest, grow and protect their money. This Technical Note aims to clarify the scope of advice which can be provided by FPs to clients. This Technical Note should be read together with the relevant Schedules in the CMSA and guidelines issued by the SC.

What is the scope of advice that can be provided by a licensed FP?
Under Schedule 2, Part 2 of the Capital Markets & Services Act 2007 (CMSA), financial planning has been defined as ‘analyzing the financial circumstances of another person and providing a plan to meet that other person’s financial needs and objectives, including any investment plan in securities, whether or not a fee is charged in relation thereto.’In this regard, an FP is allowed to provide advice to clients pursuant to the assessment and analysis undertaken on his client’s needs including on matters related to the plan which has been drawn up. This may include analysing client needs over areas such as investments, savings, tax planning, estate and retirement planning.

In drawing up a financial plan, clients may require advice on various capital market products. When providing such advice, an FP should be able to objectively consider all types of capital market products such as Unit Trust Funds (UTFs), Exchange-Traded Funds (ETFs), Private Retirement Schemes (PRS), Real Estate Investment Trusts (REITs), wholesale funds and fixed income which are capable of meeting the investment objectives of a client. Such financial plans can include specific recommendations on a particular capital market product, such as identifying or shortlisting specific REITs that are suitable for a client.

However, an FP cannot make a specific recommendation on shares of a specific public listed company, as providing such advice would require the FP to also be licensed for another capital market regulated activity, namely investment advice, where a separate Capital Markets Services Licence would be required.

FPs must also ensure they have acquired the relevant knowledge and expertise to demonstrate competence when advising, developing appropriate strategies and solutions involving capital market products and services to clients.
Can the scope of advice be extended to foreign securities?
The scope of a FP’s advice may be extensive depending on individual client needs and demands and this may include requests for advice on foreign securities. In this regard, FPs are permitted to only provide broad advice on foreign securities and must ensure they have acquired the relevant knowledge and expertise when doing so. Broad advice must not involve specific recommendation on any particular foreign securities.

Notwithstanding the above, under the ASEAN Capital Markets Forum (ACMF) Collective Investment Schemes (CIS) Framework, FPs are permitted to provide specific recommendation on the cross-border offering of CIS from the participating countries.
Does advice need to be supported by any other materials/documents?
When providing advice to clients, FPs must have a reasonable basis for all recommendations made. This obligation is set out in section 92 of the CMSA which provides guidance as to what the SC considers ‘reasonable basis’ when making a recommendation. For example, recommendations made must be supported by disclosure documents and/or research reports, whether internal or external.

FPs are required to keep records of all advice made to clients for a period of up to 7 years. These records may be reviewed by the SC as part of its supervisory oversight over FPs.
In the case of an FP who is also a CMSL holder for dealing in securities restricted to unit trusts or dealing in private retirement schemes (PRS), does distribution and recommendation of unit trust funds or PRS need to be made pursuant to a financial plan
An FP who is also a CMSL holder for dealing in securities restricted to unit trusts or dealing in Private Retirement Schemes may sell UTFs or PRS funds, as the case may be, with or without a financial plan depending on the client’s request.

FPs who are CMSL holders for dealing in securities restricted to unit trusts or dealing in Private Retirement Schemes are reminded to comply with the Guidelines on Sales Practises of Unlisted Capital Market Products when selling UTFs or PRS funds (as the case may be).