If you offer a professional service, chances are you're selling your knowledge. But what happens if your advice isn't right? We look at the risks involved in giving advice for a living.

To err is human, or so the saying goes.

Superstar footy players miss match-winning kicks, the savviest politicians put their foot in it, and yes, even the very best business professionals provide advice that can go awry from time to time.

For athletes and politicians, a mistake often simply leads to a loss or an embarrassing headline, soon to be forgotten
. But what happens if you're an accountant, lawyer, financial planner or and give advice that isn't on the money?

Let's take a look at some of the consequences below, as well as how you can protect yourself against them.

Legal battles

Mistakes happen .... some are small, others can have devastating consequences.

If your business is subject to claims of negligence, the costs can be financially crippling and an expensive lawsuit between you and your client could result.

That happened to Sydney law firm Gadens, when it was successfully sued by Aussie Home Loans founder John Symonds for almost $5 million in 2013.

It was found in the NSW Supreme Court that Gadens provided negligent tax advice that resulted in a "substantial amount" of tax, penalties and interest owed to the Australian Taxation Office by Mr Symonds.

This is where Professional Indemnity (PI) Insurance can play a vital role for your business.

As a wide-ranging insurance solution, PI insurance can protect you against legal action from a client for  errors to omissions.

Negligent advice is not restricted to financial matters either.

An Adelaide doctor was successfully sued in 2014 after she failed to detect the pregnancy of a woman, who later gave birth to a child with Down syndrome.

However, the negligence ruling against the GP was later quashed, which serves to highlight just how important it is to have PI insurance in place so that you can adequately defend yourself in court. 

“With so much on the line, it's vital that your business is adequately protected against the pitfalls that come with selling your knowledge

Public relations

Of course, just because you win the legal battle doesn't mean you'll win in the court of public opinion.

If your good name is dragged through the courts – and subsequently through
the media – there's an odds-on chance your clients and potential clients will hear about it.

So how do you protect your business? 

Do you fight the case head on and clear your name? Or do you settle early, limit the exposure but possibly look to outsiders like you've admitted guilt?

It will all depend on the particular circumstances of the lawsuit. One thing is certain, however, you'll want to be able to afford an experienced legal team to ensure you have the best chance to defend yourself.

The good news here is that PI insurance policies can also offer coverage for public relations expenses to minimise the negative exposure your business may receive.

Regulator intervention

Of course, just because your business has survived the courts and the subsequent reputational fallout doesn't mean you're guaranteed to continue in your chosen field of work.

If you've provided particularly negligent advice and the courts find you guilty, your relevant regulator, peak industry body or franchisor may either suspend or ban you from operating.

For example, in the first six months of this year ASIC removed or restricted 68 people and/or companies from providing financial services or credit.

So how do you protect yourself against this situation? Once again, having an experienced legal team going in to bat for you can help.

It's also important in many cases to have PI insurance full stop.

Some regulatory agencies, such as the Australian Health Practitioner Regulation Agency, require all health practitioners who undertake any form of practice to have PI arrangements in place.

In one recent case of operating without appropriate PI insurance a Western Australian GP was reprimanded, suspended from practising as a medical practitioner for two months, had conditions imposed on his registration, and was ordered to pay $2,000.

The final word

With so much on the line, it's vital that your business is adequately protected against the pitfalls that come with selling your knowledge.

That's why it's important to seek advice from a professional insurance broker who also offers advice on a daily basis.

So for expert advice on the best insurance solutions for your business, talk to your Steadfast broker.

Important disclaimer - Steadfast Group Limited ABN 98 073 659 677, its subsidiaries and its associates.

The views expressed are those of the author only and do not necessarily reflect those of Steadfast.

This magazine provides information rather than financial product or other advice. The content of this magazine, including any information contained on it, has been prepared without taking into account your objectives, financial situation or needs. You should consider the appropriateness of the information, taking these matters into account, before you act on any information. In particular, you should review the product disclosure statement for any product that the information relates to it before acquiring the product.  

Information is current as at the date articles are written as specified within them but is subject to change. Steadfast, its subsidiaries and its associates make no representation as to the accuracy or completeness of the information. Various third parties, including Know Risk, have contributed to the production of this content. All information is subject to copyright and may not be reproduced without the prior written consent of Steadfast Group Limited.