Speak Directly To a Lawyer Now

1300 038 223
Open 7am - Midnight, 7 days
Or have our lawyers call you:
  • This field is for validation purposes and should be left unchanged.

Professional Negligence Claims Against Financial Advisors

Anyone considering obtaining financial advice should carefully consider whether the advice in fact addresses their particular needs. When a person suffers a loss after obtaining financial advice, they may or may not have a claim in negligence against the person who provided the advice. Whilst financial advisers must explain and inform clients of investment risks and make a financial tolerance assessment, the client ultimately makes their own decision. However, in some cases, a financial advisor may be found to have been negligent and to have caused the loss suffered by their client. This article deals with professional negligence claims against financial advisors in Australia.

What do courts consider when assessing professional negligence claims?

When considering whether there is a claim in professional negligence against a financial advisor, courts give consideration to the common law, and legislation including the Corporations Act 2001 (Cth) and the Australian Consumer Law. They also consider whether the advice was misleading or deceptive and whether there was a breach of retainer, the scope of the contract or the relevant standards expected of a financial advisor.

Who may have a professional negligence claim?

A client may have a claim in professional negligence against a financial advisor if they received advice:

  1. that did no cover a particular investment (e.g shares);
  2. when the client didn’t request advice;
  3. where there was no contractual obligation to advise;
  4. and the advice amounted to misleading or deceptive conduct;
  5. that related to an unsuitable investment or failed to give due consideration to the client’s relevant personal circumstances;
  6. where there was no reasonable basis for the advice.

Was there loss or damage?

When assessing whether a financial advisor or accountant caused loss and damage to a client, a court will look at the overall circumstances of the claim. For example, where a client enters into a scheme for the purpose of tax minimisation, the court may consider that the client was aware of the risks and took them on voluntarily. The court may also consider whether there was express limited liability, for example:

  1. that the advisor was not providing advice as to the success or risks of the investment;
  2. the client was relying on the advice of another party; or
  3. the advisor could not reasonably foresee that the investors would rely upon the advice.

Duty of care of financial advisors

Clients often approach a financial advisor for the purpose of tax minimisation. Where an advisor fails in their duty of care to carry out due diligence in respect of the investment, they may be liable.

In the case of tax advice, there may be circumstances in which an accountant in an ongoing professional relationship may owe a duty to their client not to introduce them to an unsuitable tax scheme. For example, this would be the case where the client has a negative attitude to risk or to tax avoidance schemes generally.

Similarly, there may be circumstances in which the nature of a relationship (especially a long-term professional client relationship) make it incumbent upon an accountant to provide advice in relation to a tax scheme, and the implications of entry into the scheme. However, this would all be dependent upon showing that:

  1. the circumstances were such that the accountant had assumed responsibility for such matters;
  2. the accountant reasonably foresaw that the client would rely upon them in respect of these matters; and
  3. the client did, in fact, reasonably rely on the accountant.

When requesting advice from a financial advisor, clients should be clear and explain their level of risk tolerance, capacity to finance an investment and their long-term financial needs. The client should read the terms and conditions of the retainer with the advisor and establish whether there are any exclusions or limited liability provisions. The client should also obtain independent legal advice before entering such an agreement.

If you require legal advice or representation in any legal matter, please contact Armstrong Lawyers.

Robert Auricchio

This article was written by Robert Auricchio

Robert Auricchio holds a Bachelor of Arts from Chisholm Institute of Technology (now Monash University), a Graduate Diploma of Business (Labour Management Relations (Monash University), a Bachelor of Laws (Deakin University) and a Graduate Certificate (Commercial Litigation) (College of Law). Robert was admitted to practice in 2000 and commenced his career in industrial relations working for a major organisation. Robert...

Legal Hotline
Open 7am - Midnight, 7 Days
Call 1300 038 223