FICS ruling slams into advice
Financial planners and dealer groups may be held liable for incidental advice or even casual comments after a recent decision by the Financial Industry Complaints Service (FICS). The decision found a dealer group liable for losses incurred by a client who had invested in a scheme, despite warnings to the contrary.
Mark Petrucco, partner with financial services legal firm TheArgyle Partnership, says the decision is binding on the adviser and dealer group.
“FICS is a tribunal, of which dealers and advisers are members, so they agree to abide by the determinations handed down. Its charter also states it has legal force, so the determinations are binding,” Petrucco says.
“But what the case really says is that the passing on of information is sufficient conduct for liability.”
According to the determination handed down by FICS, the client (names of the parties have not been released) alleged they relied on information provided by the planner to invest in shares via an offshore broker, which was in fact a criminal group, resulting in the loss of $40,300.
Both planner and client agree the planner supplied the name and number of a broker with the Madison Group in Thailand to the client. This group, which has no relationship with the group with the same name in Australia, has already been identified by theAustralian Securities and Investments Commission(ASIC) as a group involved in offshore investment scams.
However, the adviser claims he had a number of conversations with the client and despite requests for further information, the adviser refused stating “it might imply I was promoting or recommending it”.
The adviser also claimed in his submission to FICS that “it was not an investment I wanted him to get into and I had told him that”.
However, the client claims the planner recommended the investment but stated the adviser’s dealer group said “with respect to the investments you made through offshore brokers [the dealer] has no relationship and does not offer advice or recommend investment with any such groups”.
In handing down the determination, FICS said the planner was a professional and should have identified the investment as a scam and the warnings given were not adequate. FICS also said the planner should not have informed the client of the existence of the investment or passed on contact details.
FICS also says the client should bear responsibility for he “basically ran his own race after obtaining the initial recommendation and neither sought nor received any further advice about the matter”.
As such, FICS stated the responsibility for the lost funds should be split 70/30 between the client and the dealer, with the latter to pay just over $28,000 to the complainant.
AUTHOR
Jason Spits
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