Financial Advisors:

Financial advisors are professionals who offer assistance with planning in relation to, for example, redundancy, inheritance or superannuation matters. Financial advisers will offer assistance with a client’s decision to invest their money. Obviously, this is a very sensitive area of professional practice. The very future of an individual’s quality of life after retirement may depend on the advice given to him from a financial advisor. The sheer number of financial advisers offering professional services can be daunting, and the New South Wales Department of Fair Trading itself advises that people seeking this kind of advice get multiple opinions before committing to any one strategy. [1]

In any event, a financial adviser may provide negligent advice resulting in considerable loss to the savings and investment of an innocent party. In these situations, a claim of professional negligence against a financial planner may be one way that losses can be recuperated. As is the case with all professional negligence claims, it is difficult to prove a case due to the seriousness of the allegation. Likewise, when a financial adviser is accused of negligence, he should not treat such an allegation casually. Legal advice should always be taken to ensure that:

• The case against a negligent financial planner is made efficiently, accurately and economically; or
• The defence against an allegation of professional negligence by a financial adviser is stated clearly and effectively.

The Financial Planning Association of Australia has established professional standards according to which a claim for professional negligence against a financial planner can be assessed. According to their website:

“The FPA exists to give clarity about the ethics and operating standards of those who belong to the FPA. By being a member of the FPA, you send a message to your peers, competitors, clients and your community that you are part of a strong profession, committed to the highest operating and ethical standards. And that you are fully accountable for your actions.

[...]

“As a professional association, we ‘set the bar’ and define the standards we expect our members to work to. In 2009, the FPA became the first financial planning professional association in the world to launch a full suite of professional regulations, incorporating a:

• Set of ethical principles;
• Complete set of practice standards; and
• Full range of professional conduct rules”[2]

A claim of professional negligence must be determined according to the industry standards as at the time of the allegedly negligent conduct. It is for this reason that the ethical principles upheld by a body representing that particular profession are important. Of course, all negligent claims are going to be fact-heavy, as evidence of a duty of care must also be accompanied by evidence of a breach of that duty of care. As the law develops over time in such cases, that law would have to be applied to the unique facts of each case to allow a negligence solicitor to determine, even on a preliminary basis, whether or not a negligence claim is grounded, and whether it is likely to succeed.

The Association of Financial Advisers is another body which addresses the subject of professional standards. The Code of Ethics appears to be a simple list of principles, which include the following:

• “Act in the best interest of clients to extend their financial life and abide by the laws and regulations under which the financial planner conducts his business; 
• “Strive to achieve the highest standards of professional competence by maintaining and improving the financial planner’s knowledge and skills; 
• “Hold in strictest confidence and consider privileged, all business and personal information pertaining to the financial planner’s clients’ affairs; 
• “Present accurately, honestly and completely, every fact known to the financial planner which is essential to the financial planner’s clients’ decision making; 
• “Use all ethical means to educate the financial planner’s clients about their present and future financial needs; 
• “To provide an appropriate level of service to the financial planner’s clients and their beneficiaries; and
• “Maintain high standards of personal and professional conduct to reflect favourably upon the profession of Financial Adviser and serve as an example to others.”[3]

Many of these concepts are very broad indeed. On their own, they do not provide a clear or accurate code of behaviour for financial planners. To ascertain how they operate in the day to day affairs of a planner, case law will likely need to be consulted by a legal professional. The Association of Financial Advisers has also published a consultation paper titled “AFA Principles of Practice”. [4] In this document, the AFA outlines the processes of “Supervision and Monitoring” [5] as well as addresses various concepts going to the general standards operative in the industry relating to duty of care. This is important because to ground any claim in professional negligence, the requisite threshold of duty of care must have been breached on the evidence. Notable sections that go to this standard of care include:

“Professional Conduct

“Maintain high standards of personal and professional conduct to reflect favourably upon the financial advisory profession and serve as an example to others.

“In all business interactions, act with respect toward clients and business associates and promote the value of advice, and do nothing that will bring the financial advisory industry or the AFA into disrepute.” [6]

“Professional Competence

“Strive to achieve high standards of professional competence by maintaining and improving your knowledge and skills, and those of your employees. Always meet or exceed the minimum training standards that apply to advisers under relevant legislative guidelines (e.g. RG146: Licensing: Training of financial product advisers).

“Demonstrate a commitment to professional competence through a combination of qualifications, designations and ongoing professional development.

“Only provide advice in areas where you are qualified, authorised and skilled.

“Provide appropriate training, guidance and supervision of employees to ensure they are aware of their professional obligations when dealing with clients and have the capability to act accordingly.” [7]

It is important to note that other principles are listed in the consultation paper. An experienced solicitor who deals with professional negligence cases involving financial planners should be consulted by either:

• A financial adviser who has had an allegation of professional negligence levelled against him; or
• An individual who has suffered loss as a result of allegedly negligent advice offered to him by a financial adviser.

Claims in professional negligence may have an adverse impact on an insurance policy held by the financial planner. For this reason, such claims can have an added layer of complexity which only an experienced legal practitioner will be able to handle. Essentially, an insurance firm may wish to reply on what is referred to as an exclusion in the event that there is an allegation of professional negligence. These matters need to be investigated diligently and in detail before any steps are taken at law.

If you require assistance with a financial advisor negligence dispute, you may wish to contact our firm by telephone on (02) 9233 4048 or email us at info@navado.com.au and make an appointment to see one of our solicitors.

[1] “Financial Planning”, New South Wales Department of Fair Trading website (updated 17 August 2011) <www.fairtrading.nsw.gov.au> (accessed 18 November 2013).

[2] “Standards”, Financial Planning Association of Australia website (undated) <www.fpa.asn.au> (accessed 18 November 2013).

[3] “Code of Ethics”, Association of Financial Advisers (undated) <www.afa.asn.au> (accessed 18 November 2013).

[4] AFA Principles of Practice (Association of Financial Advisers, July 2012). The Code is available at the website of the Association of Financial Advisers located at <www.afa.asn.au> (accessed 18 November 2013).

[5] Ibid, Chapter 9, page 9 ff.

[6] Ibid, Principle 5, Chapter 4, page 5.

[7] Ibid, Principle 10, Chapter 4, page 9.

This webpage (and any material or wording appearing on this webpage) is provided for general information purposes only and does not constitute any Legal Advice. It does not take into account your objectives, your instructions or all of the relevant facts and/or circumstances. Navado accepts no responsibility to any person who relies on the information provided on this website. We further refer you to our Disclaimer.