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Advisers say Aifa and Zurich have ‘fudged’ long-stop issue

Chris Hannant 480

Advisers have welcomed Aifa and Zurich’s move to limit liability for financial advice but some say the proposals are a “fudge” and the long-stop issue should not be compromised on.

Aifa and Zurich published a report earlier today to look to address the lack of a long-stop for financial services. The report is part of an ongoing Fair Liability for Advice campaign.

Four proposals have been put forward to introduce a cap on liability for advice.

The first option is to introduce a 15-year long stop through an amendment to the Financial Services Bill, as revealed by Money Marketing revealed last month.

The second option would be different liability limits depending on the nature of the investment.

The third option, “customer-agreed liability”, would effectively “stop the clock” on advice given after a certain point, such as at the end of the accumulation phase, where the customer agrees they are satisfied with advice up to that point.

The fourth option would see advice subject to a 15-year liability limit, but this limit would be extended from the last financial review, a kind of “rolling liability cap”.

Jacksons Wealth Management managing director Pete Matthew says: “I like the idea of a reviewable long-stop. Any adviser who is doing their job will be reviewing past advice, because even though advice may have been right at the time the world changes and that advice may no longer be suitable.

“Anything is better than nothing, and it would be an achievement just to get a flat 15-year long-stop. But I would love to see something more flexible and mutually agreed with the client than that.”

Yellowtail Financial Planning managing director Dennis Hall says it is right that the long-stop cause is being championed.

He says: “It is a question of fairness. It is not right that we are only profession or trade that does not have some form of statutory protection. The effect of the lack of a long-stop is disproportionate, as those who run their own businesses can carry a huge liabilities potentially to our grave, but those who work for larger firms do not have that as the firm will pick up the tab.”

But Hall is not convinced about some of Aifa and Zurich’s recommendations.

He says: “The proposals start off as good and work towards a fudge. If there is going to be a continued rejection of a long-stop then it is probably good to come away with something, and these proposals will stimulate debate. But I am not sure you want to end up with anything other than a straight long-stop as it just adds complexity.”

Highclere Financial Services partner Alan Lakey says: “It is a fudge. I do not think the lack of a long-stop should be compromised on. As soon as you set out on the road to compromise you do not get what you want. There can be no element of grey to this.”


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There are 6 comments at the moment, we would love to hear your opinion too.

  1. is this anything to do with Zurich’s ownership of Openwork ?

  2. This is very very simple –

    The law in question is the Limitation Act (1980) as amended by the Latent Damages Act (1984)

    There is absolutely no reason to attempt to re-invent the wheel !! Nor should there be any attempt to do so – we should be governed by the law of the land not rules set in unaccountable ‘quangoland’ or a fudged compromise put forward by a failed trade assoc grasping for credibility.

  3. I still don’t understand why anybody would have an IFA firm as a sole trader and wasn’t a Ltd Company. When you decide to pack up, you sell the client bank, ,pocket the cash set aside for capital adequacy and liquidate the firm…..job done… liability (and you don’t have to wait 15 years)

  4. I too regret to say that this does rather appear to be a half-baked idea. We unfortunately live in a litigious, claim culture world (where actually the debate should start). By actually mentioning to people that there is an agreed timeframe will merely act to some as a flag to ensure they make a complaint before the expiry time.

    How PI insurers would view this is also open to question – they may well regard it as an oblique inducement to claim!“So Mr Client – you are happy with this? OK then just sign this” “What is it?” “Oh this is just to say that if you decide to complain you have to do it before 15 years have elapsed – and here is the name of my PI insurers, the FOS and the FSCS”.

  5. Derek is so right.

    When the FSA says that the long stop was not discussed when Parliament debated FSMA that was because the law was already there and did not need re-enacting.

    FSMA does not say we have to obey speed limits but I doubt that argument would impress a magistrate.

    And were you aware that the long stop and financial services regulation actually appear in the same document in Hansard on 7 November 1986 where a transcript of the Queen’s speech refers to both the old Financial Services Act and the Latent Damage Act.

    The latter put the long stop in to the Limitation Act and is described by the Queen as “fair”.

    The FSA and FOS seem to think they are allowed to ignore this.

    Maybe they should be moved from Canary Wharf upstream to a rather different Tower.

  6. Laws, including the Limitation Act (1980) and the Latent Damage Act (1984), should be binding on everyone. It is obscene that a QUANGO is allowed by Parliament to act outside any Law.

    Even if the individual were qualified by education and experience to the level of a Judge; then there should still be the ‘normal’ appeal system available to correct his/her decisions. Hence the word ‘obscene’.

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