Advisors Beware

Question: On the advice of my local Rav, I invested a fairly large amount of money with a local resident, who promised me a high rate of monthly interest (with a heter iska, of course). The Rav said that the person was one hundred per cent trustworthy. During the first two months the interest installments were paid on time. In the third month the payment came several days late. That was the last payment I received. The so-called broker ceased to pay interest installments, and it has since transpired that he had gone bankrupt with debts of close to a million dollars. I now have little chance of recovering any of the capital I invested. My question is if the Rav is liable to compensate my losses?

Answer:

Show your coin to the right banker

The answer to this quite delicate question revolves around a passage of the Gemara in Bava Kama(99b). The Gemara teaches the halachah of someone who asks a banker for advice concerning whether a coin is good legal tender or not, and the coin turns out to be faulty in contradiction with the banker’s advice.

The Gemara concludes that the liability of the banker depends on his expertise. If the banker is an authorized coin expert then he is not liable to pay, provided his advice was given free of charge. If he is not an expert, then he is fully liable for the financial damage he caused, even if the advice was given for free.

The reason for which an expert gets off more lightly than a non-expert is that an expert is considered an ones—because he is a true expert, and he did his best, we cannot hold him liable for mistakes. An amateur, however, should know better than to give advice on subjects concerning which he is not expert.

Some rishonim maintain that the Gemara implies an additional clause for the banker to be responsible for the financial losses he caused. Rif extracts from that the liability of the advising banker is only incumbent when the person receiving advice stated explicitly that he is planning to act upon it. Without this statement of intent the banker is not obligated to compensate the losses caused. This is also the ruling given by Rambam (Sechirus 10:5). Rosh, however, rules that the banker is liable even without the statement of intent.

Shulchan Aruch (CM 306:6) rules the opinion of Rif and Rambam, namely that the banker is not liable for losses unless his client made an explicit statement to the effect that he plans to rely on his advice in a practical sense. Shach (306:12) cites Yam Shel Shlomo who challenges this ruling, and sides with Rosh; however, Shach continues to argue the case of Shulchan Aruchat length, quoting a responsum of Rosh himself that sides with Rif. As Rema also mentions, this is thus principle ruling in halachah.

The pitfalls of amateur advice

The relevance of these principles to the case at hand is that the ruling of Shulchan Aruch is not limited to advice regarding the validity of coins. As clear from a proof mentioned by Vilna Gaon (306:16), who addresses a case in which somebody advised his friend to buy a stolen field, the same halachos are true of every bad business advice. Seeing as the local Rav gave his congregant bad advice, the issue of his liability must be resolved from the sugya of the banker and the coin.

Applying the principles above, is would appear that since the congregant did not explicitly state that he is relying on the Rav’s advice, the Rav would not be liable to compensate for the losses incurred. This follows the above rulings of Shulchan Aruch, Rema, and Shach.

However, Shulchan Aruch, based on Rif and rishonim, adds that if the reliance of the ‘client’ is self-evident from circumstances, no explicit statement is necessary. Since the advisor knows that his client is relying on his advice, we consider it as if the statement was explicitly spoken out.

This is also evident from another ruling of Rema (CM 129:2), in which he writes that someone who gave his assurance that a loan was safe, whereas in fact it was very far from safe, is liable for damages. As Shach (129:7) explains, the advisor is liable even though no explicit statement of intention was made, because an implied statement of reliance is sufficient (see also Shach, 306:12, quoting from Maharam b. Baruch, and Nesivos Hamishpat, 306:12).

If the case at hand is such that the intended reliance of the congregant on his Rav is as clear as day—which is probably the case in certain communities—then the Rav would be liable to pay for losses. However talented a community rabbi may be, he almost always remains far far from a professional financial advisor, and, as a non-expert, he is liable for losses incurred as a direct result of his advice.

[The question of rabbi’s financial counseling was raised in a fairly recent affair in Israel, in which a building contractor that some rabbis recommended buying from went bankrupt, leaving many with sore losses.]

To conclude, a healthy word of advice, for rabbis and for whoever it may concern, is never to give advice on financial matters without stating that the advice should not be unilaterally relied on. By making this statement the advisor protects himself from any possible claim that might result if the advice should go wrong.