Financial concerns are stressful by nature, and particularly so for those with little experience handling money. Whether a household struggling to manage mounting costs in an affordability crisis, or a new business hoping to better understand the financial waters you are in, financial advice can become a necessary provision for many people. But when financial advice goes wrong, the cost can be high. What is financial negligence, and when might civil action come into play?
The Basics of Financial Negligence
Negligence is a wide-spanning sector of civil law, that describes the various ways in which individuals and entities can fail in their responsibilities to customers, clients and other plaintiffs. Interestingly, the contemporary concept of ‘duty of care’ – most often understood as part of a medical practitioner or facility’s responsibility to patients – was born not of the Hippocratic Oath, but instead of defective consumer produce.
Essentially, negligence comes down to a failure in duty of care. For doctors, this might be the misdiagnosis of an illness; for financial advisers, this might be the incorrect handling of money or giving of false tax advice. Financial negligence covers the manifold ways in which a financial professional can cause harm or difficulty for a given victim.
The handling of finances is a delicate undertaking at the best of times. Depending on the nature of your holdings or business, there are many regulatory frameworks within which you are expected to work, not in the least when it comes to proper taxation of earnings or profits. An advisor’s failure to properly perform their duties with regard to this framework could cause you legal and financial trouble – and render you eligible for civil compensation.
When You Might Encounter Negligence
But when might you as an individual become a victim of financial negligence, specifically? There are a number of reasons for which you might solicit advice on your finances; you might be a new business hoping to outsource your tax accounting, or a high-wealth individual hoping to find the most efficient route to investing your savings. You could be opening a business in a new territory, and seeking counsel on navigating international law – or simply someone looking for a financial product that best manages your current situation.
For each of these examples, there is a specific way in which negligent behaviour can manifest. A financial professional might sell a financial product in a misleading manner, failing to telegraph the risk inherent to it and resulting in the loss of capital. They might misinterpret tax law and lead you to be inadvertently liable for tax fraud. They might misappropriate money entrusted to them, endangering your liquidity in the process.
What Should You Do?
If you believe you are unlucky enough to be a victim of financial negligence, you should act as soon as you are able. With a majority of negligence-based civil claims, there is a statute of limitations that prevents a claim from remaining valid after three years.
