Should lawyers give financial advice?

Financial advice requires specialised skills.  This means to give other professions an open-ended exemption from the FAA could jeopardise the quality of financial advice and undermine consumer confidence when seeking advice.  This commentary considers the exemption for lawyers and accountants and what restrictions apply (or should apply).

Is it financial advice?

The FAA sets the ground rules for when someone is giving financial advice.  There are several carve-outs where a person is not giving financial advice (section 10(3)) which include:

• Providing information (such as the cost or terms of a financial product)
• A recommendation about a class of financial products
• Making a recommendation about the procedure for acquiring or disposing of a financial product.

Here no one (including a lawyer) is giving financial advice if they make statements like “shares generally give better long term returns than bonds” or “you can buy or sell shares by phoning a broker but I think it’s easier to do this online.”  There is no financial advice here under the FAA (for lawyers or for anyone else).

When can lawyers give financial advice?

Section 13 of the FAA provides that financial advice is not given if that advice is incidental to a business (and that business is to principally a financial service).  There is no clear dividing line for what ‘incidental” means.  A lawyer whose practice principally provides legal (not financial) advice could rely on this exemption.