Litigation – The Ultimate Reality Check Tim Nethercote & Grant Holley Compact – Compliance & Corporate Training November 2006
Jan 01, 2016
Litigation – The Ultimate Reality Check
Tim Nethercote & Grant Holley
Compact – Compliance & Corporate Training
November 2006
Some background to
our story
Scene 1: The interview
The Fact Find 3 children – 2 months, 4 & 8 – want private school
secondary education Brooke 33, physiotherapist. Not working and plans to
stay at home Cess 35, plumber, now self-employed Both plan to retire at 60 Brooke risk averse. Cess has more aggressive risk
profile Brooke has $100,000 in term deposit for children’s
education Cess likes mountain bike riding Repayments on loan of $350,000 = $2,350/month Neither have wills
Fact Find
Because Cess now self-employed, no more employer super payments but has super in an industry fund
Cess’s income in new job approximately $120,000 pa
Net assets worth $230,000
Income surplus of $16,749 pa
Both want to retire at age 60 on net annual income of $50,000
The SoA Recommendations Use equity in their home to borrow $250,000 via an
Equity Access loan for investment purposes
Place borrowed funds and the $100,000 term deposit into the Avantguard Premium Service High Growth Portfolio
Roll over funds from the industry superannuation fund to the Avantguard Retail Superannuation Fund
Purchase $600,000 Avantguard term life cover on Cess’s life so as to discharge the mortgage and investment loan in the event of Cess’s death
THE SUPREME COURT OF VICTORIA
AT MELBOURNE No. 2006 No. 123456
COMMON LAW DIVISION
B E T W E E N:-
BROOKE POOLE Plaintiff
(in her own capacity and as executrix of the will of Cecil Poole)
-and-
SUREFIRE FINANCIAL SOLUTIONS PTY LTD First Defendant
-and-
IAN SURE Second Defendant
-and-
SAFEGUARD FINANCIAL GROUP PTY LTD Third Defendant
SCENE 2 - IN COURT
Ms Money Penny
Term deposit low risk with fair returns;
Avantguard Premium Service High Growth Portfolio greater risk;
Advisers should explain the nature of such risks to the client;
Ms Money Penny
The Growth Portfolio was suitable for Cess’s profile but not Brooke’s;
Over last 2 years, terms deposits returns were 5.5%, Growth Fund 1.3%-2%; and
Financial Plan did not properly consider the education goal.
Mr Life B. Init
Income protection and/or trauma cover should have been considered.
Sufficient funds for the children’s education and a fund to provide an income in the event of Cess’s death should have been considered.
Term insurance on Brooke’s life should also have been considered.
The superannuation switch was not justified.
Mr Jimmy Doright
Gave evidence of procedures, manuals, training, compliance reviews, approved products lists, etc that Safeguard had in place
SCENE 2 - IN COURT
SCENE 3 THE JUDGMENT
Judgment on causes of action
Corporations Act
Negligence
Breach of retainer
Misrepresentation – ASIC Act
Corporations Act s945A
A provider of financial product advice must only provide the advice to the client if:(a) the provider:
(i) determines the relevant personal circumstances in relation to giving
the advice; and
(ii) makes reasonable inquiries in relation to those personal circumstances;
and
Corporations Act s945A (continued)
(b) having regard to the information obtained from the client in relation to those personal circumstances, the provider has given such consideration to, and conducted such investigation of, the subject matter of the advice as is reasonable in all the circumstances;
and
(c) the advice is appropriate to the client, having regard to that consideration and investigation.
Common Law Negligence
Duty of Care(arises from the professional relationship)
Breach of Duty of Care(failing to act as a reasonable adviser in the circumstances)
Damage(a reasonably foreseeable consequence)
QUESTIONS & COMMENTS
Court adjourned