A case from the NSW Court of Appeal highlights the stance Judges will be taking when it comes to providing financial advice.
Barrister Peter Tomasetti appealed the decision made by the courts in 2011 that his accountant was not liable for the approximate $4m losses he made in an investment.
The appeal last month alleged that Brailey engaged in misleading and deceptive conduct, was negligent in his advice to Tomasetti and Tomasetti Superannuation Funds (TSF), and was negligent in recommending investments to Tomasetti’s partner Ms Cordony.
In the initial judgement Justice R A Hulme rejected all claims, finding that Brailey had apprised the Claimants of the risks associated with the Schemes by providing Tomasetti with the PDSs.
Tomasetti argued that the PDS described the investments as ‘speculative’, and that Brailey had not informed them of this. Justice J A Macfarlan found the argument relied too heavily on the term ‘speculative’.
“The term ‘speculative’ does not carry a universal meaning and must be considered in regards to the product as a whole as well as the circumstances of the individual receiving advice,” said lawyer Paul Garnon in a case study.
On appeal, Macfarlan highlighted that Brailey had assumed Tomasetti and Cordony functioned as a single financial unit.
Cordony had serious health problems, of which Brailey was aware. Macfarlan found that due to her health issues, age, income and the long-term nature of the Schemes rendering her liable for ongoing expenses irrespective of income, Brailey was not justified in recommending the Schemes to Cordony.
Macfarlan noted that for all of the claims the question remained of whether the Claimants would have refrained from investing in the Schemes if the representations had been suitably qualified.
In Garnon’s article, he highlights four key points in the court’s decision:
When providing financial advice, a financial adviser must look at all aspects of the products and the circumstances of each client in order to ensure they are not negligent or misleading in their advice.
A court will look at the entire context and content of representations in order to determine if they are misleading or negligent; it is insufficient to rely simply on the use or misuse of one term where the concept is conveyed through other representations.
A husband and wife will not be considered a single financial entity unless they have specifically given instructions that this is so or provided a guarantee over one another's investments.
The limitation period relating to financial products may commence from a variety of different times, depending on the nature of the product, but it is necessary that an actual loss is ascertainable before time will commence to run.
Read Garnon's full article here.