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Financial Planner VS client - Financial Planner found NEGLIGENT in court

Thursday, May 16, 2019

Queensland’s Supreme Court delivered a decision last week in relation to a financial planner who was sued by a client. The client claimed the financial planner had been negligent.

 

The full Judgment can be read here https://jade.io/article/643047 and is approximately 200 paragraphs long.

In summary:

  1. The plaintiff was badly injured in a car accident and was awarded  around $2million when she was 16 years old;
  2. Five years later (now aged 22 or thereabouts), she approached a financial planner who gave her advice on investing capital of $1.2m. The financial planner considered most of her circumstances and devised monetary forecasts and budgets for the plaintiff. This was supposed to give her a reasonable annual income in order to meet her living expenses until she was eligible for the pension;
  3. The client (plaintiff) burned through the money faster than she or the financial planner had anticipated, partly because the client was making withdrawals of capital to fund her lifestyle and business investments and partly because some ongoing medical expenses of a minor nature hadn’t been considered in the financial planner’s forecast (e.g. the cost of massages);
  4. The client sued the financial planner in negligence for, among other things, failing to take into consideration the client’s likely income needs and for failing to warn the client about the consequence of eating away at the capital (i.e. a reduction in the income realised by that capital);
  5. The client actually admitted in the witness box that she knew the difference between capital and income and knew that making capital withdrawals would reduce her income;
  6. Nonetheless, the Court sided with the plaintiff client and found the defendant financial planner negligent.

 

Key takeaways

Financial planners must warn clients of ‘material risks’. A material risk is one the client would think is important. This decision implies the Court’s suggestion that to avoid ending up in a similar scenario, every time a client makes a capital withdrawal, the financial planner should warn that client of the consequences of their spending.

 

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