Wealth management firm Morgan Stanley Smith Barney and one of its financial advisers, Tony Emerton, is being taken to the County Court in Victoria after a family alleged that it lost at least $400,000 because of flawed investment advice.
Maurice Blackburn lawyer Briohny Coglin said the South Gippsland-based Morton family was suing as a result of poor advice around margin lending and call options from the company, formerly known as Citigroup Wealth Advisers.
"We are alleging that Citigroup Wealth Advisers has breached its duty of care and the Corporations Act," she said.
"In March 2007, Ms [Seta] Morton was contacted by financial adviser Tony Emerton of Citigroup Wealth Advisers."
"Mr Emerton advised our clients to take out a $160,000 margin loan from Citibank and invest this money in the stock market, together with approximately $240,000 that they had borrowed to build their home," Coglin said.
"Mr Emerton recommended the couple use gearing and call options, and when the couple told him they didn't know about such things, Mr Emerton said he'd explain it when he was in Melbourne. But that meeting and the explanation never took place," she added.
According to Coglin, Morton regularly received calls from Emerton seeking instructions to buy or sell shares and his advice was followed on each occasion.
"The strategy was meant to use profits from the shares to pay back the loans, but the shares went down in value and Ms Morton was left with a huge debt that she couldn't repay," she said.
"Unfortunately, this is a scenario we see far too often - people on modest incomes and with little understanding of financial markets being persuaded to take out large loans to invest without the implications being explained to them," Coglin added.
"It is unforgivable to expose people in these circumstances to this level of risk."
"Financial advisers had tried to get away with this while the economy is strong. But the economy is a cycle and inevitably it will take a downward turn, leaving people like Ms Morton stuck with huge debt and without the ability to pay it back," Coglin explained.
"As well as people with young families and modest incomes, we see risky strategies like this being recommended to people nearing retirement."
The matter is set down for trial on 16 November 2011.
The investments, loan arrangements and investment advice occurred when the firm was operating firstly as Citigroup Wealth Advisers and then Citi Smith Barney, before Morgan Stanley took a controlling stake in the wealth management business in June 2009.
A spokesman for Morgan Stanley Smith Barney said the firm denied the allegations and is defending the matter.
