Financial advisers should focus on client relationships ahead of what the law requires of them and recognise the standard they will be judged on is set by their industry peers, according to a financial services lawyer.
Coleman Greig Lawyers tax and superannuation consultant lawyer Peter Bobbin suggested the practice of focusing on regulatory compliance in advice was too common and overlooked the source of most legal action regarding advice.
“Don’t get caught up in sections of the law and focusing on regulatory compliance because that is easy to do,” Bobbin said during a presentation at the recent SMSF Association National Conference 2023 in Melbourne.
“What I want you to focus on, because I see advisers so often focus on regulatory compliance, is the client connection and client relationships because that’s actually where the litigation risk arises, and the mediation of it means that you improve your business.”
He revealed he was encouraging advisers to look past regulatory compliance as he had seen compliant advice still fail when tested in court and pointed to the failure of Storm Financial in 2009.
“In the very early days of Storm Financial I was asked by a financial planner to review a Storm statement of advice and it was compliant with the Corporations Act but was entirely negligent in its advice,” he shared.
“You see the distinction? Compliance is easy but then I am not talking about clients. The client is where the risk sits and it’s in the client management where you will be safer and stronger.”
According to Bobbin advisers looking for an acceptable standard for how to treat and manage clients should look at their industry peers as that is how the courts assess what is acceptable.
“If you want to know what standard of professional advice exists in Australia today in a particular area of work, look around the room and identify your colleagues in your particular area of work,” he said, pointing to the Cam & Bear Pty Ltd v McGoldrick case of 2018 in which an SMSF auditor was found negligent.
“The court found the SMSF auditor liable and who did the court rely upon coming up to that conclusion? It was the experts, who were other auditors,” he noted.
“If you’re afraid of litigation risk, don’t hate the lawyers, hate your colleagues because they set the standard that exists in litigation and client service management.”
