New Zealand: Financial advisers’ duty of care – lessons from Armitage v Church

Brief Counsel

Our thanks to Sarah Watson, for writing this edition of Brief Counsel. For further information, please contact the lawyers featured.

Financial advisers can be more confident about what is expected of them in relation to their duty of care to clients as a result of the recent Armitage v Church case.

The decision is likely to form the benchmark for future cases under section 33 of the Financial Advisers Act as the Judge took the opportunity to comment extensively on the standard of care expected of competent financial planners and advisers.

This Brief Counsel draws some practical guidance from the judgment, including a suggestion that financial advisers revisit their disclaimers.

Brief summary - Armitage v Church

The plaintiffs were Neil Armitage, a retired public servant with a portfolio of investment properties, and his family trust. The defendants were Carey Church, a financial adviser with 20 years experience, and her company Moneyworks NZ Limited.

Armitage approached Church for advice in 2005, on how best to invest around $360,000 he expected from selling a property. Despite a risk profile questionnaire ranking Armitage as a "conservative" investor, Mrs Church advised Armitage to invest in a narrow range of fixed interest investments: four (now failed) finance companies (Bridgecorp Holdings Limited, MFS Finance Pacific, Strategic Finance Limited and North South Finance Limited); and two ING products.

In 2006 Armitage again sought advice from Church on how best to invest the expected proceeds from selling his remaining investment property ($640,000) as well as $430,000 of his own funds. This time a risk questionnaire produced slightly more aggressive results – Armitage ranked as a "balanced/ growth" investor, with his family trust a "balanced/moderately aggressive" investor. Church advised Armitage to invest in more ING products.

Bridgecorp was placed in receivership in July 2007. Around the same time, Armitage terminated his and his trust's relationship with Church and Moneyworks. Armitage commenced proceedings in 2009 for losses of $292,000 he claimed were caused by Church and Moneyworks breaching their duty of care in the spread and risk level of his and his trust's portfolio.


Dobson J held that Church had breached her duty to provide competent advice in the following ways:

  • her recommendation that Armitage concentrate his investments in finance companies, as this was inappropriately narrow and exacerbated risk. She was also found negligent in her advice to invest in ING's Credit Opportunity Fund (ING COF) as part of the fixed interest portfolio, as this was really a growth asset. Given Armitage's risk profile, neither of these investments was appropriate
  • her failure to recommend alternative, less risky fixed interest investments, such as government or listed corporate bonds, and
  • her failure to disclose that her advice was limited to certain categories of investment, and that she restricted her investment research to finance companies and ING products. Her disclaimer was not enough to exclude liability.

Due to her high level of contact and close relationship with Armitage, Dobson J found that the corporate veil of her company Moneyworks Limited could not protect her from personal liability. His Honour found she should have reasonably foreseen the damage that would result from her failure to provide competent advice.

Interestingly, Church was not negligent in recommending Bridgecorp on its own, as the existence of Lloyds insurance as well as a positive rating justified her advice.

She was also not negligent in recommending the ING fixed interest investments. Even though there was only a single fund manager, the product spread was sufficient, unlike a single finance company debenture. Church was entitled to rely on ING at the time "as being sound and of good reputation, with very substantial backing." The drop in value of the funds was due to the global financial crisis, which Church could not have reasonably foreseen.

All up, Armitage and his trust suffered over $200,000 in capital losses from Church's breaches. However, Dobson J reduced damages by 25% as Armitage was partly negligent, and again by 40% due to evidence that Armitage would still have invested in finance companies even if a wider range of options were available (even after Bridgecorp became insolvent and he terminated his relationship with Mrs Church, Armitage continued to place funds with finance companies). Church was ordered to pay nearly $60,000 compensation for loss on the finance company investments, and around $8,500 plus interest on losses from the ING COF.

Practical lessons for advisers – what can advisers learn?

A number of practical lessons can be learnt from the decision, and Justice Dobson's commentary is particular useful in this context.

Risk/reward, and use of risk profiles

Assessing a client's risk profile requires more than just a risk questionnaire

Financial advisers cannot solely rely on risk tools such as risk questionnaires. They must "stand back from the quantitative outcome" of the risk questions and form their own view as to their client's appetite for risk, including looking at the client's background and the way they present themselves.

Assessing the risks of an investment

Before giving advice, financial advisers have a positive duty to actively assess and research the risks arising in relation to an investment, and form an independent view about them. It is not enough for financial advisers to rely on disclosures made by the investee company itself, or (if the company is listed) continuous disclosure obligations. Dobson J held that "except in unusual situations, competent financial advisers must assess the relative merits and risks of a potential fixed interest investment by research with sources other than the investee company". Financial advisers will be expected to do more than simply rely on the silence of the investee company as a sign that all is well.

If the financial adviser does not fully understand the risks involved, they have a duty to seek assistance from someone who does.

Recommending investments suitable to the client's risk profile

Financial advisers must recommend investments appropriate to their client's risk appetite to satisfy their duty of care. Church had breached her duty of care in recommending ING COF, and the concentrated investment in finance companies, which was too risky considering Armitage's conservative/ balanced risk profile.

Ensuring client is aware of risk / reward relationship

Financial advisers must ensure that their clients are aware of the relationship between risk and reward.

Matching recommendations to client income needs

Although Church was not found negligent for failing to match the investment recommendations to Armitage's income needs, it is clear that financial advisers should have a clear understanding of their client's assessed cash flow requirements, and take those considerations into account when making their recommendations.

Armitage had a need for cash income in order to service his bank loans, and claimed Church was liable as she should have checked his cashflow "budgets" and was responsible for his low returns from the ING investments. However these claims were not successful, essentially because Armitage decided not to realise investment properties (and pay back loans), contrary to Church's advice – and importantly Dobson J found that there is no positive duty on advisers to ensure that investments (in this case, investment properties) are disposed of and mortgages discharged.

Importance of diversification and availability of other options

Financial advisers must ensure their client is aware of alternative options for investment. In this context, Church did not raise the possibility of investment in listed bonds (and her defence - essentially that she was not a sharebroker - was not sufficient to allow her to ignore listed bonds and other types of fixed interest security).

Ignoring classes of investments will no longer be an option for authorised financial advisers, given Code Standard 10 (of the Code of Professional Conduct for Authorised Financial Advisers), which requires disclosure of any limits on the possible investments recommended. When recommending only one class of financial product, authorised financial advisers must warn their client of the narrow scope of their advice. They also have a duty to inform their client that other investment alternatives exist.

General disclaimer not an escape route

Financial advisers must also take care to use specific wording in their disclaimers. Although Church's disclaimer stated "Moneyworks provides comprehensive, and partial financial planning services if these are required", she still had an obligation to specifically inform Armitage that her advice did not take into account more conservative non-finance company investments.

Care should also be taken when using general wording in disclaimers, such as stating that projected returns are "merely an expression of opinion and are intended for illustration purposes only". Whether these types of disclaimers are effective will depend on the context in which the advice is given. Here, Church had specifically stated that Armitage's returns would be sustainable, consistent and predictable - which was enough to render her disclaimer ineffectual.

Other disclosure requirements

Finally, Armitage restates the importance of financial advisers informing their clients of the fees they will charge, and any other interests and relationships with the investee companies that might influence their investment advice and recommendations. Here, Dobson J was critical of the fact that Church did not disclose the amounts she was paid by investee companies in return for recommending the investments made by Armitage.

This is now enshrined in the FAA's disclosure regime for authorised financial advisers.

What lies ahead

The findings in Armitage v Church are likely to shape future thinking on the duty in section 33 of the FAA. This may not be the last word on this topic however, as Church has indicated that she intends to appeal the decision.

The information in this article is for informative purposes only and should not be relied on as legal advice. Please contact Chapman Tripp for advice tailored to your situation.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Emma Harding
Penny Sheerin
Bradley Kidd
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:
  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.
  • Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.
    If you do not want us to provide your name and email address you may opt out by clicking here
    If you do not wish to receive any future announcements of products and services offered by Mondaq you may opt out by clicking here

    Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

    Use of

    You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


    Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

    The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


    Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

    • To allow you to personalize the Mondaq websites you are visiting.
    • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
    • To produce demographic feedback for our information providers who provide information free for your use.

    Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

    Information Collection and Use

    We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

    We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

    Mondaq News Alerts

    In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


    A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

    Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

    Log Files

    We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


    This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

    Surveys & Contests

    From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


    If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


    From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

    *** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


    This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

    Correcting/Updating Personal Information

    If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

    Notification of Changes

    If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

    How to contact Mondaq

    You can contact us with comments or queries at

    If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.

    By clicking Register you state you have read and agree to our Terms and Conditions