Sophia, who is unemployed, single and living in very poor circumstances, recently received an unexpected bequest from a distant relative of $50,000. She has a young son, Lucas, to support. She approaches her old friend Adam, who has recently retired, for financial advice.

Adam has worked in senior positions in a major Australian Bank and given financial advice to individual clients. Although very experienced in giving financial advice to clients regarding superannuation and investment products, Adam never obtained an Australian Financial Services Licence entitling him to give financial advice professionally. However, he agrees to advise Sophia saying that he is able to give her the advice she needs at half the cost of licensed financial advisers.

There is no legal contract agreed between Adam and Sophia - just an informal understanding that Sophia will pay a reasonable amount when she is able to do so. Sophia impresses on Adam that she is dependent on him for good financial advice to secure her future, and that of Lucas. She explains her financial situation in detail to Adam, stressing how important it is that she be able to stay in the apartment in which she lives with Lucas. To do this, she must continue to meet the exceptionally low monthly rent she presently pays.

Adam understands Sophias position but persuades her to take a new investment product that he is keen to market to others. He knows that although this new product promises greater income it also carries more risk of a capital loss. He does not advise Sophia of this risk. Unfortunately, the recommended product does not earn the income Adam predicts and Sophia is now unable to maintain her rent payments. She is desperately short of cash and may not be able to find an apartment to rent. She maintains that Adam knew her position and should have been able to advise her more carefully to avoid this situation.

Advise Sophia as to any claim she might have against Adam under the law of negligence. Your answer should include references to any relevant legislation and/or cases.

Note: You must not consider any remedies that might arise in Contract Law, or under the Corporations Act because Adam does not hold a Financial Services Licence.