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Advisers shouldn’t overlook fiduciary relationships

Financial advisers and accountants must acknowledge the scope of their fiduciary relationships, particularly where their duties may exist beyond the direct client to other family members, an expert SMSF lawyer has said.

“At the risk of oversimplifying, yes, you are in a fiduciary relationship with your client if you agree to act for another person in the exercise of a power or discretion which will affect the interests of that other person in a legal or practical sense,” DBA Lawyers director Bryce Figot told the DBA Lawyers SMSF Strategy Seminar in Sydney last week.

“Will this probably occur when discussing succession planning? When you’re giving them even just guidance on succession planning, do you think that you’re doing things that affect their interests in a legal degree or practical sense?

“Fiduciary relationships are quite powerful and I hate to sound like a negative Nancy because it’s a bit of a downer to talk about, but it’s one thing that doesn’t get much airplay and something certainly to be aware of.”

Figot said advisers should care about fiduciary relationships as they were subject to the highest of duties, it was easier for a client to prove a breach of duty and there were easier causation rules for clients to sue than in negligence.

Furthermore, advisers can be liable for compound interest and advisers cannot plead contributory negligence.

One of the fundamental aspects of a fiduciary relationship was that there could be no conflict of interest, Figot said.

“If you feel there are a number of people relying upon you, is there any conflict? Or are there a number of people who think they are relying upon you and think that you are their adviser?” he said.

“You may only view the matriarch or the patriarch as being your client, but who else thinks of you as their adviser? Probably everyone you do income tax returns for.”

Advisers should also identify the fiduciary relationships of their clients, he said.

“If your client is a family trust, who do they owe their duties to?” he said.

“I’d add a couple of extra steps – taking notes – [in the minutes] to make it bulletproof.”

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