In 2022, Clare was thinking about buying an investment property, and discussed this with a financial adviser who specialised in investment strategies for people interested in property investment. The adviser also presented properties to clients to consider because she had relationships with certain developers. If a client bought a property that is still under development, the adviser provided updates from the developer about progress.
In August 2022, Clare went through the advice process. She was interested in their strategy, and her adviser presented her with three properties to consider. One of these was a townhouse which had an estimated completion date of November 2022. The townhouse met Clare’s investment requirements, including her timeframe for entering the property investment market. Clare was keen to get into the market as soon as possible because interest rates looked to be rising.
In early September 2022, Clare entered a contract to purchase the townhouse, and arranged funding from a bank. She paid the adviser $6,000 for their advice and strategy.
In October 2022, the adviser advised Clare that the developer expected to start construction early in the New Year.
Over the period January to August 2023, the adviser sought monthly updates from the developer and passed these on to Clare. Delays occurred with the project, and the developers were required by the local council to undertake additional work, which had not been anticipated. Clare unsuccessfully attempted to get an idea from her adviser about when the townhouse would be completed.
Clare was considering going overseas in September 2023. She was anxious about the uncertainty about the townhouse, and told her adviser that she was thinking of cancelling the purchase contract. In mid-September 2023, she did so.
Clare complained to the adviser that she had made it clear from the outset that she wished to get into the market quickly, and they should have known the November 2022 estimate was not accurate. She asked the adviser to reimburse her for the advice fees of $6,000. The adviser said that they relied on information given by the developer, and were not responsible for the delays with the development.
Review
We reviewed the adviser’s file, and agreed that generally, the adviser were entitled to rely on information given to them by the developer. Further, they were not responsible for the delays with the development.
However, we could see from the adviser’s file that they knew, before their discussion with Clare, that the estimated completion date for the townhouse development had been pushed out to December 2022. It appeared the adviser did not update their information about the development.
The adviser did not dispute that Clare told them that she wanted to get into the market quickly, but said that they had met her needs in that she had got into the market quickly, and may have achieved potential capital gains while the townhouse was being built. However, we noted that Clare’s investment requirement was to be earning returns from renting a property as soon as possible.
In circumstances where Clare told the adviser that she wanted to enter into the market quickly and where the adviser knew the developer had revised the estimated completion date, the adviser should have told Clare of the updated estimate and that e the townhouse may not meet her needs.
In looking at loss, we noted Clare said that she would not have entered the contract to buy the property if she had known of the revised completion date, and she would have bought another property. However, we could not be certain that Clare would have found another satisfactory property with an estimated timeframe of November 2022. Even if she did, that timeframe may also not have been met.
On the other hand, we considered the adviser had caused Clare some non-financial loss in that she lost the opportunity to properly assess her options before signing the contract to buy the townhouse. She may have sought further information about the progress of the development and the reasons for the delay. She may have considered other properties, or other investment opportunities, in line with her investment goals.
We considered that a fair outcome was for the adviser to pay Clare half of her claim, that is, pay her $3,000. This would compensate Clare for her disappointment at losing the opportunity to fully consider her options.
Clare accepted our preliminary decision, but the adviser did not respond.
Resolution
As the adviser did not respond, we issued a final decision requiring the adviser to pay Clare $3,000 within five working days. The adviser paid the compensation.
Insights for participants
It is critical for advisers to update their documents and advice to clients when new information is received as previous advice/information may mean a recommendation no longer meet the client’s needs.
