Sisters In Law: What to do if you receive bad advice from financial adviser

A woman who inherited $50,000 eight years ago was given bad financial advice – and she has lost a load of money.

Welcome to Sisters In Law, news.com.au’s weekly column solving all of your legal problems. This week, our resident lawyers and real-life sisters Alison and Jillian Barrett from Maurice Blackburn advise what to do about bad financial investment advice.

Question:

I came into a healthy $50,000 inheritance eight years ago and wanted to invest it for my future. I went to see a financial adviser who recommended some ways to invest that he said would “almost double” my money in 10 years. I said I wanted to be cautious and not do anything too risky and he assured me it was a “safe bet”. But here I am almost a decade on and the money hasn’t almost doubled – far from it. In fact, it has gone down in value and I’m looking at a shortfall. What can I do about the dodgy advice I received from my financial adviser? – Rachel, NT

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Rachel inherited $50,000 eight years ago and was promised she would double her money in 10 years but now she is facing a shortfall. Picture: iStock

Answer:

Sadly Rachel, bad financial advice is rife. And as the banking royal commission a few years ago showed, it’s not just smaller operators – but also large financial institutions – that have steered clients into troubled territory.

Financial advisers are required to make appropriate inquiries and ensure the investment strategy is in the consumer’s best interest.

It sounds like you’ve received some bad advice and the financial adviser didn’t listen to your requests to be cautious and have a stable portfolio.

So what are your options?

You can start by making a complaint in writing to your financial adviser and the firm they work for.

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Making a complaint in writing to your financial adviser and the firm they work for is a good place to start. Picture: News Regional Media

If you’re unhappy with their response, then you can take the issue to court, or to an industry complaints scheme such as the Australian Financial Complaints Authority (AFCA).

Every person’s circumstances are different, so you should obtain specific legal advice about your individual circumstances before deciding which avenue to pursue.

Generally speaking, taking your case to AFCA is cheaper, but can be more time consuming. There is also a $500,000 cap on compensation at AFCA, and they can’t consider claims with a total value of more than $1 million. Based on your investment, it sounds like you would be entitled to complain to AFCA.

If you decide to take the matter to court, there is no compensation cap and you can also be awarded compensation for loss of opportunity. The process is often quicker, but it may be expensive if you lose the case and are ordered to pay adverse costs.

If you decide to take the matter to court, there is no compensation cap. Picture: iStock

Strict time limits apply so you shouldn’t delay in seeking legal advice.

While it’s too late for you in this situation, if you’re looking at investing again, prevention is always better than cure, and some tips to protect yourself when investing include:

• Ensure your advice is from a financial planner who is backed by an ASIC registered Australian Financial Services licensee.

• Be wary of advice given without a written statement of advice or having completed the financial needs analysis/fact find questionnaire.

• Be wary of any advice to set up a self-managed super fund to borrow and invest in real estate.

• Read the fine print and all of the documents provided by the financial adviser, particularly the statement of advice and the product disclosure statements.

• Ensure you agree with the investment classification/score on the financial needs analysis/fact find questionnaire (ranging between defensive and aggressive).

Read the fine print and all of the documents provided by the financial adviser. Picture: iStock

• Be wary if you have been classified as a “sophisticated” or “wholesale” investor, which waters down the financial planner’s legal compliance obligations, or as wanting assertive, aggressive, or high growth investments.

• Ask questions to ensure you understand the strategy the financial adviser wants to take.

• Be wary if the adviser recommends a strategy to borrow money to invest, particularly when the borrowings are a “margin loan” or there are options trading/hedging.

• Make your own notes of conversations with the adviser, and then confirm it with them in writing, keeping a record for yourself.

• Avoid following any advice to roll out of a superannuation fund which has existing death and disability insurance cover provided in it, particularly if you have a pre-existing medical condition.

This legal information is general in nature and should not be regarded as specific legal advice or relied upon. Persons requiring particular legal advice should consult a solicitor.

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