Authors: Katherine Hayes, Partner and Greg Stirling, Senior Associate
Introduction
A recent Supreme Court of Queensland decision in the case of Bankier v HAP2 Pty Ltd [2019] QSC 101 has highlighted the need for financial advisers to enquire into their clients’ personal circumstances and warn of the material risks of implementing their advice, particularly when they are aware of issues that may impact their clients' future earning capacity.
Background
In 2002, when the plaintiff was 21 years old, she received a $2 million award of damages for the serious spinal and internal injuries she suffered in a car accident in which her father was killed. The award was to compensate her for future loss, medical expenses and associated matters.
Shortly after the award, the plaintiff engaged the defendant financial planning firm, HAP2, to provide advice on investing part of the award. Importantly, HAP2’s advisor had previously acted for the plaintiff’s father, who died in the car accident. The adviser was therefore aware of the circumstances leading to the plaintiff seeking financial advice.
After paying her mortgage and amounts to her family, the plaintiff invested $1.132 million on HAP2’s advice. While not clear from the judgment, this amount appears to have been invested in shares.
From time to time, between 2002 and 2005, the plaintiff instructed HAP2 to withdraw various amounts totalling around $85,000 from the portfolio. During that time she also:
- Established a surf photography business, including leasing a premises, which required some international travel and does not appear to have been profitable. The adviser was consulted from time to time about her spending associated with the business; and
- Bought an investment property financed with a loan. She sought advice from the adviser regarding her ability to afford the investment.
In June 2006 the plaintiff’s portfolio was valued at around $1.5m, but fell in value to around $700,000 by December 2008, which was during the global financial crisis.
The plaintiff relevantly pleaded that HAP2’s investment advice was negligent and in breach of the Corporations Act because its adviser failed to:
- Warn the plaintiff of the risk of capital loss;
- Establish the plaintiff’s needs, goals and budgets and manage the damages award to give effect to them;
- Warn the plaintiff against excessive expenditure; and
- Advise the plaintiff of alternative low-risk strategies that could have been implemented in lieu of the portfolio recommended by the adviser.
