The guidance note is particularly relevant to situations where it is difficult or impractical to access information to support reasonable grounds for financial advice on an investment product.

As an investment advice provider, you have an obligation under Code Standard 3 which requires that “[a] person who gives financial advice must ensure that the financial advice is suitable for the client, having regard to the nature and scope of the financial advice.”

The commentary to the standard explains that:

Ensuring that the financial advice is suitable for the client should include having reasonable grounds for the financial advice. Reasonable grounds for the financial advice means those grounds that a prudent person engaged in the occupation of giving financial advice would consider to be appropriate in the same circumstances, such as those in relation to:

• Any strategy supporting the financial advice.

• Any assumptions underlying the financial advice.

• Any financial advice product covered by the financial advice.

• The client’s circumstances that are relevant to the financial advice, such as their financial situation, needs, goals, and risk tolerance.

Whether financial advice is appropriate for the client depends on the nature and scope of the financial advice, as well as the circumstances. The guidance note acknowledges the difficulties financial advisers may face when providing financial advice about high-risk, complex, or novel financial products where access to information to support reasonable grounds can be difficult. For instance, those giving financial advice about IPOs or smaller market capitalisation stocks may not always have access to 'expert research'.

Directors, managers, advisers and the compliance officer of FAPs advising on investments should read this guidance note and consider the requirement for reasonable grounds when providing financial advice. The guidance note is available here and there is also a CPD module on Radar relating to it.