Our Supreme Court of Appeal has given an important judgement about what constitutes financial advice by an intermediary accredited under the FAIS Act. Where the financial adviser, professing knowledge and experience regarding investments, went to a meeting with the clients with the purpose of furnishing information about two investments in which the respondent subsequently invested. This constituted the giving of advice in the ordinary understanding of the term and not simply objective information about the products. Clients were seeking advice regarding investment avenues for their spare money. The presentation given to them went well beyond a description of the products. The presentation was directed to two specific products which they were told meet their investment needs. The clients invested in these two products shortly after the presentation.
In Atwealth (Pty) Ltd v Kernick  ZASCA 27, the court found the information furnished was designed to induce the clients to invest in the particular products for which the financial adviser receives a commission. The presentation took the form of a proposal and constituted guidance in respect of the purchase of specific financial products. That conduct went much further than a mere description of the financial investments and the mechanism by which the clients could invest. The inducement to invest continued to operate when subsequent investments were made in the same products. The court quoted an email from the financial adviser which discussed relative interest rates for different products, the structuring of the investment to meet the income requirements of the client, and advice regarding how much to draw and how much to reinvest annually so that the investment was capitalised to exceed inflation. Ask yourself whether the intention is that the proposal or guidance can be relied on by the client as an inducement to enter into the financial transaction.
Once it was established that it was financial advice, the question was whether the adviser had complied with her legal duties to the client. These include, in the FAIS General Code, factually correct representations in plain language, adequate and appropriate to the circumstances, as well as to act honestly, fairly, with due skill, care and diligence. The common law test of negligence remains whether the financial adviser exercised the skill and knowledge usually associated with competent financial advisers giving advice on a product. Where a person undertakes an activity for which expert knowledge is required and they know they lack the requisite expertise knowledge, they should not undertake the activity or they must inform the client they do not have the knowledge and refer elsewhere for advice. Evidence is needed to establish as clearly as possible what was told to the client regarding the investments. That evidence is then tested against what a reasonably skilled financial service provider would know about the products in the marketplace, what due diligence they would have done before making the presentation to the client, and what sources of information they would have consulted to be sure they had the skill and knowledge to give the advice. Negligence is tested against the general level of skill and diligence possessed by financial advisers giving similar advice in the marketplace.
In deciding whether a financial adviser is negligent, you will ask questions such as had they undertaken the necessary research, whether their presentation would have been materially different to the one made and whether the presentation properly made would have caused the clients to act differently and not invest in the product. The true criterion for determining negligence is whether, in particular circumstances, the conduct falls short of the standard of the reasonable person, and whether the advice induced the client to invest in the product.
Unfortunately for the clients, their lawyer failed to lead the necessary evidence to establish negligence and tried to rely solely on a breach of the FAIS Act. The FAIS Act alone is not the basis for civil liability. In the circumstances, the claim failed but that does not detract from the principles set out above which will presumably be examined if there is a claim against the attorney for failing to present a proper case.