Financial and investment advice: What not to say to your clients

This article was current at the time of publication.

As these legal cases show, investment and financial advice are just some of the areas that can trip practitioners up. 

Coming off the back of recent court cases where accountants overstepped the legalities of advice, in the following are some timely reminders about what you should and shouldn’t say to clients.   

One such case was a Perth-based accountant currently facing charges under the Bankruptcy Act 1966, in which it is alleged the accountant helped the client to conceal and dispose of property assets before bankruptcy.

Each of the charges brought carry a maximum penalty of five years’ imprisonment and a $63,000 fine. 

Straying from your (advice) lane

Drew Fenton CPA, Managing Director of CPA Australia’s preferred broker Fenton Green and Co, which handles 2800 CPA firms, notes: “Another well-publicised example is of an accountant acting in a capacity out of their lane in Western Australia where the practitioner was sentenced to 10 years in prison for stealing and defrauding $5.8 million from clients.” 

The practitioner told clients he was a financial advisor as well as an accountant and convinced them to hand over their savings so he could invest them on their behalf.

Offering to give financial advice when not qualified is probably the worst thing accountants can do or say, Fenton says.

“If you don’t have an Australian financial services (AFS) licence, you are breaking the law.”

Justin Enright CPA, Managing Partner of Morse Group Accountants and Advisors in NSW adds: “The only way to deal with a client asking for financial advice is to explain that in the aftermath of various commissions and [given] the regulatory burden now in place around financial advice, you are simply not able to offer advice.”

Coming unstuck trying to please clients

Enright believes that while most practitioners know their professional limits, they still like to try and please clients, which is where they come unstuck.

Take the case of an acrimonious marital breakup where an accountant previously worked for both parties and provided confidential tax information about one to the other.

Says Nicole North-Vanner, Regulatory Compliance Specialist at CPA Australia: “The practitioner should not say, ‘so, you’ve split with your husband, no worries, I can still handle your investment property’.

“This can be a breach of [the practitioner’s] ‘fiduciary duty’ because it gives rise to questions such as, ‘who is the client?’, ‘who owns the documents?’ and ‘can I continue to provide services to the couple individually?’.”

It all comes back to overpromising, without necessarily understanding or checking the legislation behind the promise. 

Changes in legislation can also trip up well-meaning practitioners, highlighting the need to stay up-to-date with industry regulations and upskill through recognised courses.

Keep a safe distance

Accountants also put themselves at risk when they become too close to a problem, says Robyn Erskine FCPA, a Partner at Brooke Bird in Melbourne. 

“They can get so invested in clients’ affairs – especially practitioners who are often their first port of call – that they lose objectivity and cross the line.

“An accountant who gets too close can end up being deemed a director of the client’s struggling business and if that happens, they lose the protections offered to professional advisers [and] under the Corporations Act [can] be held responsible for breaches of law and personally liable for the business’s debts.”

Says Theresa O’Connor FCPA, a Partner at Townsville-based Concord Tax and Business Solutions: “When you have known clients for a long time and go to their weddings and funerals, scope creep is always something you have to look out for.

“While you want to develop strong relationships with clients, for most accountants the advice you give has to come back to tax,” O’Connor maintains.

Put it in writing

No matter what the advice, it needs to be in writing with appropriate file notes to manage risk, Fenton says.

“Two people’s versions of events are sure to be different,” he cautions, and when clients get into financial difficulty, their risk profile from an accounting perspective goes through the roof.

“The number one risk in any business is people. There are two sorts of people – those within your practice and clients. Within the client base always ask [yourself whether existing and potential] clients are professional.”

Ensure staff members are up to speed on record keeping and what they should and shouldn’t say – or promise – to a client, advises Enright. 

“Ongoing training for staff around quality control and documentation is essential,” he says.

In addition to notes of client discussions, every client file should include an engagement letter, Fenton continues. 

This should meet requirements set out in APES 220 Taxation Services and APES 305 Terms of Engagement and practitioners should ensure the client acknowledges receipt.

“This way an accountant can more clearly define what they can and can’t do for a client and move into contract law with a document that lists duties and fees,” Enright explains.

If you can’t do something or don’t know the answer to a problem, say so, and refer your client on.

“A sure-fire way all practitioners can circumvent issues is to build a stable of like-minded professionals around them through networking.” 

Enright has developed relationships with a variety of solicitors and finance brokers – as well as financial advisers – he can refer to rather than feel pressured into overpromising.

Be warned, however, that it’s always a mistake to refer a client to a friend simply because they are a friend.

“If you don’t know they can help, a referral is like advice,” warns North-Vanner.

Don’t say …

“Why don’t you give my friend a call? I’m pretty sure he’s done insolvency work before.” If you’re not entirely sure, find out. After all, it’s a recommendation to a trusted client.

“BHP is a really good stock. I suggest you get into that.” This constitutes financial advice.

“I don’t know too much about contract law, but I can draw up something for you.” Some clients ask accountants to draft legal papers because it is less expensive than solicitors. Don’t.

“If you’re going to another accountant, I’m not going to give them your financials.” Generally, you need to provide a former client with sufficient details for the new accountant.

“Things are looking bad and I think you’re going to go broke.” Be careful about how you deliver bad news and preferably not in one blow, says Concord Tax and Business Solutions’ Theresa O’Connor.