There have recently been a number of high profile court cases against financial advisors from respected banks around Australia. These financial advisors had engaged in fraud as well as misleading and deceptive conduct and caused their clients to invest their money in schemes where their clients ultimately ended up losing large amounts of money.
In a recent case, a retired low income couple were successful in showing that their financial advisors had influenced them into investing in a company and that the financial advisor had not made reasonable inquiries into their circumstances.
The individuals, based on advice from their financial advisor, borrowed $2.2 million and the investments ultimately failed. The individuals sued the financial advisor and their authorised representative for statutory breaches of duty and were awarded damages of $2.5M. On appeal the amount was reduced on the basis of contributory negligence to $1.78M.
Financial services litigation is regulated by Chapter 7 of the Corporations Act (2001) (Cth)and Corporations Regulations and Part 2 of the ASIC Act 2001 (Cth) which largely replicates theCorporations Act. Importantly ASIC can implement banning orders and depending on the circumstances can run claims on behalf of plaintiffs with no funds.
Under the Corporations Act, a person who carries on a financial services business must be licensed. A licensee and a licensee's authorised representative owe certain duties when they give financial product advice or deal in a financial product.
For example, brokers and financial advisors that offer shares, insurance contracts, deposit taking facilities such as bank accounts (but not credit facilities) and margin lending facilities and provide a recommendation or statement of opinion intended to influence a person to make a decision about a financial product (or could reasonably be regarded as intending to influence the decision) owe certain duties in relation to the advice that they give.
Duties on licensed financial advisors and brokers are found in the Corporations Act;for example they:
- must do all things necessary to ensure advice is provided efficiently honestly and fairly;
- must take reasonable steps to ensure that their representatives comply with theCorporations Act;
- must have an internal dispute resolution system;
- cannot engage in unconscionable conduct;
- cannot engage in misleading or deceptive conduct or dishonest conduct.
There are also additional duties found in the Corporations Act where personal advice is given to clients with limited business knowledge. For example in such a situation the financial services licensee must:
- make reasonable inquiries into personal circumstances before giving advice;
- must undertake a reasonable investigation of the subject matter of the advice;
- must ensure the financial services or product advice be appropriate to the individual;
- must ensure the advice acts in the best interests of the client.
If you feel that your financial advisor or broker has given you bad advice and you have relied on that advice and by doing so you have suffered financial loss then you may have a claim against the financial advisor or broker under the Corporations Act and or ASIC Actand you should seek experienced legal advice.