Henry was hosting a barbeque party for a number of his close friends, who also happened to be clients of his financial planning firm, Alpha Financial. Alpha Financial provides superannuation and investment advice. The sausages, steaks, and a few drinks were going down well with the group. Brad then turns to Henry with his mobile phone in hand.
“Henry, have a look at this. It’s a 1975 original Holden HJ Monaro Coupe. I got these photos from a friend of a friend who had this car garaged since he bought it. It only has 27,000 kilometres on it. There’s one that went to auction at Shannon’s last year and sold for $98,500 and there’s one on eBay now for $109,000. I can pick this up for $50,000.”
Brad hands his mobile phone to Henry who pours over all the photos and remembers the good old days when he had a similar Holden. He also takes a look at the auction results and the eBay listing Brad mentioned.
“Brad, this looks great. What a car and all original. I can’t believe this only has 27,000 kilometres on it. If you don’t pick this up, I think I might, but I’ll have to run it by my wife first.”
They both have another sausage and drink as they recall a number of cars from the 70s, when they were young men. The conversation then turns to the current price of these older vehicles and whether or not this is a great deal. Brad then turns to Henry.
“So, mate, is this a good investment?”
Financial advisers often find themselves in discussions about investments, estate planning, retirement, and insurance during their own leisure time. It’s important to understand the potential risks that participating in such conversations poses to both themselves and their licensee.
The Corporations Act states that a licensee is responsible for the conduct of a representative whether or not their conduct is within authority. Specifically, 917B of the Corporations Act states, “… the licensee is responsible, as between the licensee and the client, for the conduct of the representative, whether or not the representative’s conduct is within authority”.
This wide-ranging definition binds the financial adviser’s conduct to the licensee. For practical illustration purposes any financial advice given to a client, or potential client, could fall within this definition and hence any financial detriment suffered by a client, or potential client, may come back in the form of a complaint or legal action.
AFCA now aligns the type of complaints they will hear with the Corporations Act. So potential claimants can get “a free shot” at the licensee as AFCA is a free service to consumers.
Complaints that have fallen within this type of over-arching purpose have included inappropriate investment advice and advice provided by a financial adviser after their authority was revoked.
Synchron recommends that financial advisers only deal within their authorised areas of expertise and tread carefully whenever topics of a financial nature arise in conversations, especially with clients who are also friends, so that they do not risk their licence. In the event they find themselves discussing topics of a financial nature they should make it clear that their opinion is one of a general nature and has no personal foundation for advice.
The Corporations Act 2001 is relatively new law; hence cases and precedent are scant around this issue, apart from those around ostensible agency. However, a look into the older Agri-Investment Referral schemes prior to the global financial crisis may shine some light on how the courts may treat these issues. In Tomasetti v Brailey the financial adviser’s wife succeeded in a claim for inappropriate advice.
While this example may sound extreme, the litigious nature of our society may see cases like this come to light.
In regards to Henry’s barbeque conversation, a good answer from Henry might be, “Mate, let’s leave this alone and go watch the footy”.
Justin Harding, head of legal and dispute resolution, Synchron
Stimulate new ideas. Stimulate new thinking. Top up your CPD points and hear from industry experts with ifa’s Knowledge Centre. Keep up to date with the latest trends and reforms, all while adding to your CPD hours. Explore the Knowledge Centre now.
AFCA has confirmed it will not appeal the Supreme Court’s decision that it had acted against its obligations in January. ...
Financial advisers who engaged in mediation with AMP after being terminated by the wealth giant over the past two years have been left “dissatisfie...
FASEA has confirmed advisers on a career break at 1 January can take the industry exam later than the compliance deadline and return to the industry w...