Court rules adviser personally liable and increases award
[UPDATED - with decision] A financial adviser sued by a former client over finance company advice, won't be able to hide behind his company after the High Court found him personally liable for an increased damages award of $90,000.
Friday, August 10th 2012, 6:04AM 
1 Comment
The original award of $72,700was made by District Court Judge Peter Spiller, who ruled Hamilton-based AFA Rodney Hartles had breached both the Fair Trading Act and his duty of care in his advice given to retired pharmacist Ken Gilmour.
However, he ruled that Hartles' company Decisionmakers (Waikato), not Hartles himself, was liable; Decisionmakers has since been put into liquidation without paying any of the damages award.
The judge found Hartles had been negligent in failing to do a proper needs analysis and investment plan, leaving Gilmour "exposed and at risk" with an inappropriate investment portfolio that included a $100,000 investment in Bridgecorp.
Both parties appealed the District Court decision, with Gilmour arguing against the liability finding and against deductions made by Judge Spiller from the $100,000 total, which was based on the Bridgecorp investment.
Decisionmakers cross-appealed against the damages award, disputing a number of the judge's findings including that it had engaged in misleading and deceptive conduct, that it had breached its duty of care and that Gilmour was looking for a low-to-medium risk portfolio.
Justice Mark Woolforddismissed Decisionmakers' cross-appeal, saying the crucial finding was that Hartles had failed to identify Gilmour's goals.
Justice Woolfordreferred to email evidence he said supported Judge Spiller's finding that Gilmour had been in a "twilight zone" where his adviser had "inadequate information or records about his client."
He also hiked the amount awarded, ruling that Judge Spiller had erred in deducting 15% from the total based on an assessment of whether Gilmour would have placed his funds in low-to-medium risk investments had Hartles' advice met the required standard.
The deduction had been based on a precedent set in the Armitage v Church case, but Justice Woolford said the factual situation was "quite different" in this case.
He said Gilmour, who knew little about finance companies, could be "contrasted with Mr Armitage who knew of and had clearly expressed views about finance companies."
Finally, he ruled that as the sole director of the company and having personally advised Gilmour, Hartles was the "alter ego" of the company and "should be responsible personally for the statements he made that were held to be misleading."
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If the courts and the investor in this case are claiming that Rodney Hartles failed to provide a proper needs analysis and financial plan, and conversely his business (Decision makers) claims otherwise, then surely all that Decisionmakers would need to do is to ask the claimants to prove that Decisionmakers did engage in misleading & deceptive conduct, and that Mr Gilmour was looking for a low to medium risk portfolio?
Because, Decisionmakers would surely have their file notes showing the risk profile process?
Back when all those finance companies were producing double-digit returns being often 4 or 5 times a comparable bank deposit return, they were probably perceived to have been low to medium risk.
Today, after the failures of most finance companies, those original risk profiles obviously need to be "updated" to suit current times.
With all the recent "hoo-haa" with the push for regulation & the great associated saviour org (the FMA)to save the investors for the future, where on earth is there any mention of the regulatory bodies of those past days who were placed there to watch over the regulation that applied to virtually every finance company & it's related prospectus....the TRUSTEE/S?
'Regulation' existed back then, and the custodians of TRUST seem to have failed in their job??
Yet not one of them have been seen in any of the cases surrounding lost money from within the relevant finance companies?
It appears to be accepted by the world here now, that the 'incredible' advisers who introduced their investors to years of 'incredible' returns, are now the recipients of that age-old saying.."pass the monkey?"
I have 'never' ever heard of even any unsophisticated investors who can honestly say they have never heard the saying "high returns means high risk!?"
The fact remains that all deposits into finance companies were UNSECURED...just the same as bank deposits are....still !
The perk that the banks continue to retain over their finance company 'cousins' is the perk of their unique form of 'leverage' known in financial circles as "fractional reserve".
This incredible feature allows banks to lend out many times more money/s than their actual asset reserves are!
Someone once called that the ultimate PONZI scheme.
Greed and fear drive investors.
Maybe Mr Gilmour was driven by greed back then and then the other factor took over and he simply decided to pass the monkey?
Rodney Hartles on the other hand would surely have even some simplistic file notes to back his claim?
So...is it not "he who makes the claim bears the burden of the proof?"
ie; If there is a legitimate claim that the adviser in this case failed in the claimed areas, then surely they would be required to prove it?
Unless Mr Gilmour, and Mr Hartles in their respective roles are two totally different individuals than all the other respective investors and advisers?
Michael Donovan (Never had 1 investor in Bridgecorp when an adviser.)