Counting the cost of bad financial advice

Financial advisers have to take out indemnity insurance before they may give advice to potential investors. But what happens when the insurance company has an exclusion clause in place that automatically rejects crucial claims – claims brought by clients against brokers who advise them to invest in Ponzi schemes, for example? Marisa Oosthuizen, who recently won a case against her financial adviser via a crucial decision in the Free State High Court, was in exactly this position after her broker said she should put her money in a scheme that collapsed, just days after she did so. He advised her to put her funds in the scheme even though she had made it clear to him that she wanted a safe investment because she could not afford to lose ‘even two cents’ of the funds earmarked for her son’s upbringing. The judgment, interpreting the insurance company’s exclusion clause, ruled that the company had to pay. But as legal writer Carmel Rickard explains in her A Matter of Justice column on the Legalbrief site, the insurers have since filed notice that they want to appeal, saying one compelling reasons to do so is that this is the first time the South African courts have adjudicated on the issue.