The Financial Markets Authority (FMA) is consulting with market participants NZX and SIA to produce guidance for AFAs uncertain how to approach share offerings while remaining within their obligations under the Code.

Under Standard 6 of the Code of Professional Conduct for AFAs: "When providing financial adviser services to a client, and AFA must. . . make recommendations only in relation to financial products that have been analysed by the AFA to a level that provides a reasonable basis for any such recommendation, or analysed by another person upon whose analysis it is reasonable, in all the circumstances, for the AFA to rely."

The issue was highlighted by the recent small cap float of Energy Mad - which had no analyst coverage.

Sue Brown, The FMA head of primary regulatory operations, told Good Returns that the issue had been raised with the FMA prior to the Energy Mad float and that was what prompted the regulator begin consultations ahead of releasing guidance.

"While we've answered questions that have been raised to us, we thought it'd be helpful to have that guidance more widely available," she said.

"Before we finalise it and publish it we wanted to take the opportunity to consult with key stakeholders such as NZX, SIA and other industry associations to make sure we understood and captured the issue."

Brown said that while AFAs would not be expected to have analysts research, "FMA expects an AFA to understand the nature of the issuer's business and the risks associated with investment in its shares to the extent necessary to enable him or her to determine whether the investment is suitable for a particular client."

She said it would be unlikely an AFA could satisfy their obligations if they had not considered the registered prospectus and investment statement for any IPO, and also that the guidance would help with the twin objectives of the FMA - to promote consumer confidence and the development of the capital market.

"They go hand in hand in this respect, and this particular piece of guidance is a case in point," she said.