Xander, the beneficiary of a trust, called the trust’s financial adviser, Caitlin, to discuss converting some of the trust’s cash assets into Australian dollars. Caitlin explained that because Xander was not a trustee, she could not accept instructions from him and that he would need to ask one of the trustees to instruct her.
The following day Diana, one of the authorised trustees, emailed Caitlin confirming that the trustees agreed with Xander’s request to convert 50% of the trust’s cash into Australian dollars.
Caitlin replied by email that 50% of the cash in the trust’s on-call account would be converted into Australian dollars. In the same email Caitlin referred to the trust’s term deposits that were about to mature three days later. Diana thanked Caitlin for her email.
Two months later, Caitlin sent the trustees a portfolio update showing $80,000 in Australian dollars and $1,800,000 from the term deposit proceeds held in cash. Diana immediately emailed Caitlin asking why half the $1,800,000 had not also been converted into Australian dollars when the term deposits had matured two months earlier. Diana called Caitlin and authorised the conversion of $900,000 into Australian dollars that day.
Dispute
Diana and Xander complained that Caitlin had failed to follow their instructions. Xander said he and Caitlin had discussed converting the cash to Australian dollars immediately and converting the term deposits to Australian dollars when they matured a couple of days later. Diana’s follow-up email to Caitlin told her to follow Xander’s instructions. As a result of exchange rate movement, the trust had lost about $40,000.
Caitlin said she understood Xander only wanted to convert the on-call cash to Australian dollars. Caitlin had clarified the instructions in an email to Diana and attached a statement highlighting the on-call cash, clearly distinguishing the trust’s cash from term deposits. Although Caitlin did not accept she was responsible for the misunderstanding, she offered $20,000 as compensation
Review
This was a classic case of a misunderstanding or miscommunication between a financial adviser and their client.
Xander said that when he spoke to Caitlin, he told her to convert half the money in the cash account to Australian dollars immediately and, when the term deposits matured in three days’ time, to convert half of that cash to Australian dollars.
Caitlin said Xander only told her to convert the money in the cash account and she followed up her understanding with an email.
We balanced the available information and decided that Caitlin should accept more responsibility for the loss flowing from the misunderstanding because:
- she did not keep a record of her conversation with Xander
- her email was ambiguous
- she did not follow-up with the trustees about what they wanted to do with the $1,800,000 after the term deposits matured
- Diana immediately expressed concern that the term deposits had not been converted to Australian dollars, indicating she believed she and Xander had given this instruction.
We also considered that Diana had some responsibility, because she could have clarified Caitlin’s email and perhaps noticed earlier that the term deposits had not been converted.
Resolution
We proposed, and both parties accepted, that Caitlin pay 75% of the trust’s loss, about $30,000.
Insights for consumers and participants
When receiving instructions from a client, the adviser must keep a written record of the instruction and take the time to carefully and clearly communicate their understanding of what their client is asking them to do. The adviser should proofread their communication to check for any possible misunderstanding. The Code of Professional Conduct for Financial Adviser (which applied at the time of this case) requires advisers to communicate clearly, concisely, and effectively with their clients as well as keep adequate written records.
We also encourage consumers to double check that their instructions have been followed. If Diana had checked the account a day or two after the term deposits matured, she would have been alerted early to the misunderstanding.
