Fortnum Private Wealth to Pay $150,000 for Inappropriate Advice

Complaint

The complainants, Mr and Mrs G, bring this complaint in their individual capacities and as trustees of their Self-Managed Superannuation Fund (SMSF).

Mr M is a financial adviser who has been authorised under Fortnum Private Wealth Ltd’s Australian Financial Services Licence (AFSL) since 1 March 2013. Before this, he was an authorised representative of a different AFSL holder, Company R, and the complainants initially engaged him in this capacity.

The complainants say, during the period Mr M was authorised by Fortnum Private Wealth, Mr M inappropriately recommended:

• establishing the SMSF and rolling over existing superannuation funds
• maintaining a pre-existing National Rental Affordability Scheme (NRAS) property investment strategy despite the devaluation of the properties and high operating costs and
• changes to Mr G and Mrs G’s personal insurance covers.

Fortnum Private Wealth says establishing an SMSF was appropriate for Mr and Mrs G’s goals and objectives in March 2013. The NRAS investment strategy continued to be appropriate due to future growth potential. It also says Mr and Mrs G’s personal insurance needs were regularly discussed and confirmed as being appropriate.

Issues and key findings

AFCA determined that establishing an SMSF was appropriate for Mr and Mrs G in March 2013, but there was no identifiable basis for the Milky Way investment being appropriate.

After July 2013, AFCA commented that there were frequent deficiencies in the advice documentation for the SMSF, and there was insufficient diversification within the portfolio and an over-concentration of investment risk in a single provider, Blue Sky. Because of this, AFCA determined the advice was no longer in the client’s best interests.

Moreover, AFCA determined there was insufficient understanding of Mr and Mrs G’s insurance needs as they evolved, and the switch recommendations were poorly reasoned.

However, the advice not to wind up the NRAS investments was in the best interests of the

complainants. The properties had fallen in value since they were purchased but were still providing large tax deductions for Mr G and it was reasonable to remain invested in them in anticipation of future capital growth.

Why is the outcome fair?

Mr M’s advice was poorly reasoned and inadequately documented. The inappropriateness of Mr M’s investment advice to the SMSF, and to Mr and Mrs G regarding their insurance, have caused the complainants to suffer direct loss.

Determination

This determination is in favour of the complainants.

Within 28 days of the date the complainants accept this determination, Fortnum Private Wealth must pay compensation in the amounts of:

• $103,115.20 to Mr G’s superannuation account, plus compound interest calculated at 2% from 29 June 2020 to the date of payment
• $19,694.68 to Mrs G’s superannuation account, plus compound interest calculated at 2% from 29 June 2020 to the date of payment
• $28,857.36 to a bank account nominated by Mr and Mrs G, plus compound interest calculated at 2% from 1 October 2020 to the date of payment.

Getting Legal Help for Bad Financial Advice

Contact us if you’re questioning the advice you received from a financial advisor and consider taking steps against them. We are committed to ensuring our clients receive the best possible advice and guidance on their situation, especially in financial matters. You can contact us online, call us at 1300 433 533 or email us at enquiry@fdlegal.com.au.