It is not uncommon for people, investors and businesses to suffer financial losses as a result of sub-standard professional advice offered by Financial Service Providers ("FSP"), as defined in the Financial Services Advisory and Intermediary Act ("FAIS Act"). In some instances, a financial advisor is not duly qualified and/or adequately experienced. Sometimes, it has nothing to do with qualification and experience, however, the advisor does not fully understand and appreciate the risks associated with the financial product in respect of which s/he is giving advice. Against this background, it is crucial that individuals, investors, and businesses are aware of their legal recourse in such cases.

Examples of cases where financial losses may be suffered as a result of sub-standard advice by an FSP:

  • Where a person/investor or business has, on the recommendation, and/or guidance of a financial advisor, bought a financial product (e.g., stocks, bond, insurance, etc.) inconsistent with their needs and requirements, and as a result, they suffer a financial loss.
  • Where a person/investor or business has, on the recommendation, and/or guidance of a financial advisor, invested in a financial product and it later appears that the promised/guaranteed gains do not realise. An example of this would be in a case where a financial advisor recommends that you invest your funds in a certain investment product, guaranteed to grow your capital by a certain percentage and it does not realise.

The law in respect of financial/investment advisors giving advice in an area or in respect of products in which they do not possess the expected knowledge and necessary skill is trite.

Common law:

In Durr v Absa Bank Ltd and Another, the court held that it would be regarded as negligent to "engage voluntarily in any potentially dangerous activity unless one has the skill and knowledge usually associated with the proper discharge of the duties connected with such an activity." The principle, as indicated in the Durr case, echoes the position delineated in the Van Wyk v Lewis case – 1924 Appellate Division judgment. There is a plethora of cases that have also rubberstamped this principle.

FAIS Act together with General Code of Conduct:

Section 2 of the Code imposes, as a general duty, that financial services providers must, at all times, deliver financial services honestly, fairly, with due skill, care and diligence.

Section 3 of the Code requires, among other things, that representations made, and information provided to a client by a financial services provider must be factually correct; adequate and appropriate in the circumstances of the particular financial services having regard to the factually established or reasonably assumed knowledge of the client.

These are but some of the applicable provisions of the General Code of Conduct under the FAIS Act. It is also evident that they are congruous with the long-standing common-law principles.

In light of foregoing legal position, it is extremely crucial that individuals, investors and businesses who have suffered financial losses as a result of negligent advice by a financial service provider take the necessary legal steps in order to recover the losses.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.