This case provides a useful analysis of the contractual and common law duties of financial advisers to exercise reasonable care and skill in providing financial advice and the statutory duty to have a reasonable basis for advice given or recommendations made.  While the Court stressed that deficiencies in the written documentation recording the client’s circumstances, goals and objectives, and the reasons for advice or recommendations will not necessarily amount to a breach of duty if the evidence shows that the adviser did in fact have a reasonable basis, more fulsome record keeping would certainly have been useful for the advisers’ defence.  Financial advisers should ensure that they keep detailed and complete written records of their clients’ circumstances, goals and objectives, and the reasons for advice given or recommendations made, to reduce the scope for a client to subsequently argue a breach of the adviser's duties.

At the recommendation of Mr Takla of Chambers Investment Planners Pty Ltd (Chambers), Mr Dennis made numerous investments in managed investment schemes and equity investments between 1999 and 2008 that were substantially financed by debt.  Following the global financial crisis, Mr Dennis suffered losses and brought proceedings against Chambers and Mr Takla for his loss.

In rejecting Mr Dennis’s claims, Barker J in the Federal Court of Australia found that:

  • there was no equitable duty that Chambers would exercise reasonable care and skill and there was no implied term that Chambers provide advice “as to the most suitable financial investments”;
  • Chambers had a duty under contract and at common law to exercise reasonable care and skill in providing financial services and advice to Mr Dennis;
  • the duty in section 945A and 954B of the Corporations Act 2001 (Cth) emphasises the need to both determine relevant personal circumstances and make “reasonable enquiries” in relation to those personal circumstances.  This does not mean that there had to be enquiries made every time a new recommendation or advice was given (as the initial enquiries may still be sufficient); and
  • the statutory duty is reflected in the industry rule to “know your client, know your product”, meaning that an adviser should always recommend to a client a financial product that suits their circumstances, goals and objectives, and as such should be in possession of such information, including any changes from time to time.

Much of the debate in this case centred around the apparent deficiencies in Mr Takla’s record-keeping with Barker J noting that:

  • while there was widespread industry use of a Fact Find document as a convenient means to acquire the usual information, an adviser needs to get to know a client before recommending a product. It was acknowledged that industry bodies encouraged members to fully document the advice given (if not the reasons for doing so). However, there was no requirement to complete such a document or to record everything in writing.  Rather the key question is whether, on the evidence, the adviser had a reasonable basis for giving advice or making a recommendation;
  • an incomplete Fact Find or Statement of Advice may not permit an adviser to give considered advice if that is all the adviser has to rely on but information recorded in such written documents can be supplemented by separate consultations (in this case every 6 months or so) and other correspondence between advisers and clients; and
  • in this case, Mr Takla had been advising Mr Dennis for a relatively long period and over that time developed a good appreciation of his circumstances and appetite for risk.

In light of the above and after analysing the circumstances of each investment, Barker J found that:

  • there was no breach of the common law or contractual duties to exercise reasonable care and skill, nor the statutory duty to have a reasonable basis for providing advice;
  • Mr Takla’s representations concerning the appropriateness of the advice and recommendations was not misleading or deceptive or likely to mislead or deceive; and
  • despite the fact that there were several errors in finance applications made on behalf of Mr Dennis, these errors were not material and there was no evidence of any relevant person being misled or deceived.

See the case.