Accountants, like all professionals, owe legal duties to their clients to ensure that the advice they provide is appropriate.
Despite the best of intentions, accountants sometimes make mistakes that can get them into legal trouble. In some circumstances, a client or former client can make a negligence claim or misrepresentation claim against the accountant to recover any losses suffered as a result of bad advice. Any claim will turn on it facts, but we regularly see a number of problems.
The law requires anyone who provides financial advice to have an Australian Financial Services Licence (AFSL), or to be an authorised representative of an AFSL licensee. What constitutes financial advice is complicated and can depend on the circumstances of a particular case. Even so, accountants should be aware of their legal obligations when making recommendations or stating their opinions about financial investments, insurance products, or facilities through which their client makes non-cash payments.
Even in the event that an accountant is licenced or authorised to provide financial advice, he or she will need to ensure that the advice adheres to the standard expected by the law. The law requires advisers to know their client’s personal circumstances, financial objectives and attitude to risk, understand the products that they are recommending and document their advice, amongst other things.
Legislation does provide accountants with some exemptions, which allow them to provide advice about traditional taxation cases and advice on the taxation implications of investing in some financial products without a licence, however these exemptions are presently undergoing changes. Accountants should ensure they understand the limitations of any exemptions before providing advice.
In our experience, accountants who inadvertently provide financial advice often fail to satisfy the legal obligations required and in certain circumstances this can constitute professional negligence. If in doubt, accountants should seek legal advice on their obligations before providing advice.
In recent years, some accountants have provided advice to their clients to purchase investments for tax reasons, such as agricultural managed investment schemes like Timbercorp, Australian Olives, Wilmot Forests and Great Southern. In providing this advice, accountants were typically authorised representatives of AFSL licensees and had legal obligations to ensure that the advice provided complied with the law. Some accountants have found themselves in hot water where recommendations were made to clients who did not require a tax minimisation strategy, had a low risk tolerance or health issues which made the investment inappropriate.
Sometimes when a client has received bad financial advice his or her accountant may be alerted to this before the client is aware, for example when preparing an annual tax return. Accountants who are uncertain or concerned about financial advice received by their client, or financial products or services held by their client, should be careful not to provide financial advice themselves but should instead recommend that their client seek a second opinion. If the client has already suffered financial loss as a result of the bad financial advice, a prudent accountant will suggest the client seek legal advice.