English law relating to professional negligence draws an interesting distinction between whether the professional person is giving information or giving advice. This is not specifically part of South African law but it is relevant when considering liability, for instance, of brokers under the FAIS Act. The difference is between providing information for the purpose of enabling someone to decide on a course of action, and advising someone as to what course of action to take.
An English court held in 2017 that a broker was responsible for failing to inform a client that there was no market for the proposed retrocession cover for a book of reinsurance business contrary to the broker’s duty to inform the client whether or not reinsurance was available. The broker was responsible for the entire transaction in placing the retrocession and was therefore giving advice and not merely information because it took responsibility for the whole transaction.
A professional giving advice should have clear terms of business setting out the scope of their responsibility for the decision-making process.
If a person who is under a duty to take reasonable care to provide information on which someone else will decide on a course of action is negligent, that person is responsible only for the consequences of the information being wrong. The professional person is not responsible for losses which would have occurred even if the information provided had been correct. But the person who gives advice and takes responsibility for the whole transaction, if negligent, will be responsible for all the foreseeable loss which is a consequence of that course of action having been taken.
What can South African financial advisers take away? The purpose and effect of their advice is relevant. A professional giving advice should have clear terms of business setting out the scope of their responsibility for the decision-making process and for the transaction which results from the advice given.