Financial Planners vs Trustees

“Financial Planners”

There have been ongoing inquiries by the Senate into misconduct by so called “Financial Planners” employed by the “wealth management” arms of the major banks such as NAB Wealth.

Financial Planners are actually financial product salesmen and they are not Trustees.

Large number of “Financial Planners” provided negligent advice that in many cases was “inappropriate” to the financial circumstances and needs of their clients. However, the Financial Planners did not attempt to deliberately defraud their clients.

In the case of any “buyer-seller” transaction the legal position is “let the buyer beware” {caveat emptor} . No one is forced to seek the advice of a financial planner and no one is required to accept the advice offered. Investors should always read the Product Disclosure Statements before investing any any financial product.

There is a contractual relationship between a buyer and a seller.

As Jeff Morris stated at the Senate Committee hearing on 6 March 2015 that banks rely on clients signing a contract document then its is a case of “You signed that – more fool you”.

Trustees

The law places much higher standards of conduct on Trustees, especially professional Trustees employed by banks who are paid for their services.

The High Court has confirmed that a Trustee is the archetype “fiduciary”. The obligations of a trustee are covered in more details here.

Allegations of misconduct by Trustees and the staff employed by Trustees are far more serious than allegations of misconduct against persons who role is basically to sell financial products.

The role of a trustee is to execute the trust (or trusts) and to seek the assistance of the Court if necessary to do so in the interests of the cestuis que trust (ie in the case of a superannuation trust – the members and beneficiaries}

A Trustee has a personal liability if the Trustee commits a breach of trust that results in a loss to the beneficiaries.

If the Court is to excuse a trustee for a Breach of Trust, the Court has to be convinced that the trustee has acted honestly, reasonable and ought to be fairly excused for omitting to seek the advice of the court in relation to the matter that caused the breach of trust.

The relevant provision in the Trustee Act 1936 (SA) is Section 56. Section 56 can be found here.

The beneficiaries of a trust have a fundamental legal right that should protect them and that is the right to have access to the original Trust Deed as well as to any instruments that purport to amend the terms of the original Trust Deed.

In the case of a regulated superannuation trust (fund) the Parliament of Australia has made it a criminal offence in its own right to deny access to the original Trust Deed and any instrument that purports amend the terms of the original Trust Deed.

More details of the rights of beneficiaries can be found here.

Members and beneficiaries of a regulated superannuation trust (fund) have far more legal rights than the clients of Financial Planners.

Of course superannuation is compulsory and in the of Defined Benefit funds the members do not have the “choice of funds”, they are “locked in” to whoever is the Trustee of their fund.


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This tab updated on 16 March 2015