Financial Planner found to be not negligent for giving Basis Capital advice - Federal Court decision

On 9 April 2013, the Federal Court of Australia handed down its judgment in Jordan v HLB Mann Judd Wealth Management NSW Pty Ltd [2013] FCA 315.  The judge found that the financial planner was not negligent and did not mislead or deceive the client in their advice regarding two Basis Capital funds.

Background of the case

The applicant, Ms Jordan, acquired $7 million from a properly settlement and engaged HLB Mann Judd Wealth Management ("HLB") to invest between $5.21 million to $5.5 million.  Ms Jordan was an unsophisticated client with little experience in dealing with her financial matters.  She wanted her investments to generate $15,000 per month of income and she wanted to have sufficient capital over the balance of her life to generate the income.

In the 2006 statement of advice ("SOA") Ms Jordan was deemed to have a balanced and growth risk profile.  In the 2006 SOA HLB recommended, amongst other investments, that Ms Jordan invest:

collectively (the "Basis Funds").

In July 2007, the Basis Funds were in financial difficulty and Ms Jordan ultimately lost her capital of $537,500 plus interest.

Ms Jordan alleged that both HLB and its financial services licensee, Lonsdale Financial Group Limited ("Lonsdale") had:

 

The Court's decision

The Federal Court found for HLB and Lonsdale in respect of all of the issues.

Justice Foster found a simple proposition at the heart of all the allegations: "that no ordinary skilled financial adviser should have recommended to Ms Jordan that she invest $537,500 out of investment funds of $5.2-5.5 million in the two Basis Funds" (115).

In dismissing the allegations of negligence and misleading and deceptive conduct, Justice Foster made the following considerations:

 

Justice Foster also dismissed Ms Jordan's allegations regarding s 945A of the Corporations Act as it only applies to retail clients whose investment, which is the subject of the advice is $500,000 or less.  As Ms Jordan was a wholesale client and not a retail client, section 945A of the Corporations Act did not apply.  The Judge found that, even if section 945A did apply, HLB would have complied with the requirements of this section.

Tip

As financial advisers, it is important to consider the following points which are beneficial in establishing a good defence:

 

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