A recent High Court case (Denning v Greenhalgh Financial Services Limited) has provided some useful guidance on the scope of retainers and how this may impact on the duties an adviser may owe in respect of advice given to a client by a previous firm.
The key facts of the case were as follows. In 2000 the client, Mr Denning, sought advice from Firm 1 on transferring from a defined benefits scheme into a personal pension. It recommended the transfer.
Over the course of the next six years or so, the personal pension failed to meet the critical yield required to match the defined benefits. Denning was aware of this and had expressed his disappointment to the firm towards the end of that period. As he approached retirement in 2007, the firm recommended a further transfer into another personal pension.
In August 2008, Denning sought advice from Firm 2 (Greenhalgh), having grown increasingly frustrated with the performance of his pension following the two transfers recommended by Firm 1. At around the same time, Denning complained to Firm 1 about various aspects of the advice received but did not complain about the original transfer out of the DB scheme back in 2000. It was not until late 2010/2011 that he made that complaint.
In May 2012, the Financial Ombudsman Service rejected the complaint about the original transfer, stating it was made more than six years after the date of the advice and more than three years after Denning knew, or ought to have known, he had cause for complaint (Denning was deemed to have had sufficient knowledge by May 2006).
At this point, Denning commenced proceedings against Greenhalgh, alleging that, when instructed in August 2008, it should have immediately advised him he may have cause for complaint against Firm 1 in respect of the original transfer.
Cause for complaint
Denning’s case was that, notwithstanding any particular facts or information Greenhalgh may have been aware of when instructed in 2008, any competent adviser would have immediately advised their client that the 2000 transfer from the DB scheme was potentially unsuitable, and that the client may have cause for complaint.
If Denning had complained around August 2008, his claim would not have been time-barred. However, the High Court entirely rejected Denning’s argument. It found that:
- All correspondence between Greenhalgh and Denning was focused on his current position and his prospective retirement, that is, the retainer with Greenhalgh was entirely forward-looking
- There was no express instruction at any time from Denning to advise on the 2000 transfer
- The argument that any competent adviser would have advised Denning to consider a complaint against Firm 1 in respect of the 2000 transfer was not found credible by the court. It stated the starting point for the scope of duty of the adviser was the retainer between them.
The retainer did not explicitly or implicitly consider a review of past advice but did explicitly state that the adviser would not give legal advice or draft legal documents. The court considered advice in respect of a prospective claim or complaint was essentially legal advice.
All cases are, of course, fact-sensitive. However, what is encouraging for advisers in this case is the court refused to broaden the scope of duty in the absence of specific evidence that the retainer included a review of past advice or that Denning had asked for this.
Based on this approach, advisers can take some simple steps to mitigate their risk by including provisions in their agreements with clients that they are not qualified to give legal advice. This could be even more specific and say advisers will not consider and advise on whether a client should complain about previous advice received unless explicitly agreed.
Even more importantly, advisers need to ensure nothing in any further correspondence with the client departs from this position and inadvertently or otherwise widens their duty. Both measures would make it far more likely advisers only assume a duty for giving advice and nothing more.
Finally, this is a court case, not a Financial Ombudsman Service decision. As we all know, the FOS is not bound by the law but decides cases based on what is “fair and reasonable”.
However, such a clear decision on a set of facts quite familiar to most advisers must be of assistance, and it should be difficult for the FOS to ignore such a clear statement of the position – which is, after all, entirely logical. This may provide some comfort to those facing complaints who are fearful of “scope creep” by the FOS, as it performs its “inquisitorial role”.
Alan Hughes is partner at Foot Anstey LLP