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Carl Lamb: Clients should not just be limited to the FOS

Carl Lamb MM blog

The news that the High Court has granted a couple’s claim against their adviser for outstanding losses, despite having been awarded compensation through the FOS, has caused both confusion and anxiety in the industry.

Many advisers feel that once the FOS has ruled, then no further action should be possible, but given that Barry and Julie Clark’s losses far exceeded the maximum amount able to be awarded in compensation by the FOS, why should they not have the opportunity to get full redress for the bad advice they received?

We have been shouting from the rooftops about improving fairness and transparency for some years; if we want to be seen as an honourable and professional industry, we have to prove that we stand by our advice, or suffer the consequences.

At the end of the day, this is a wake-up call for all advisers to triple check that the advice they give is entirely correct and appropriate for the client.

If our clients lose money and it is our fault, we should be held to account not only by the FOS, but by the courts as well.

Whilst many advisers have been complaining about the High Court judgement, the moral of the tale is that the onus is on advisers to ensure they are giving copper-bottomed advice at all times, properly researched and extensively documented.

Without wishing to cast aspersions on the advisers in this case, the investors allegedly lost £500,000 from money which was invested as a result of selling their business. My immediate thought is that this should have sounded alarm bells for any adviser. surely the money should have been conservatively invested to protect the couple’s capital which had been built up over their working lives?

The advice to invest this money in geared TEPS looks questionable to say the least, even without looking at the commission earned, which is likely to have been around £25,000. Such cases do nothing but tarnish the reputation of all advisers, so I hope this will be a warning shot across the bows of advisers who think they can sail close to the wind and get away with it.

The current claims culture and recent misselling scandals muddy the waters in this debate. Clearly as an industry we will always be on the back foot, thinking defensively about whether or not what is being marketed by providers as “normal” today could be seen as bad advice tomorrow.

However, we have the tools and framework to get it right. Clear-cut processes, efficient research resources, proper records and good sign-off procedures can support decisions about suitability and fee-based charging structures should protect the client from inappropriate product recommendations.

I would like to think that the Clarks’ case is an isolated one and unlikely to be repeated in the post-RDR world but, realistically, bad advice does still happen, and clients need to be confident that they have proper protection, through the courts if necessary, should they be unfortunate enough to fall foul of it.

Carl Lamb is managing director of Almary Green


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There are 14 comments at the moment, we would love to hear your opinion too.

  1. Sounds reasonable and it would be if advisers had the same right to have their case heard in a court where the law and not the biased views of an ombudsman, who has morphed into a consumer champion, rather than a fair and impartial organisation, would take precedence.

  2. That’s all well and good, providing the courts/ombudsman use the standards of advice at the time, as opposed to applying the applying standards now on products sold in the early 90s, when perhaps attitude to risk or documentation was less important. Also, if clients can take advisers to court even after the ombudsman’s ruling, surely Advisers must have the same course of action, specifically against Clients who lie or have selective memories regards past advice.

  3. David Trenner - Intelligent Pensions 26th February 2013 at 11:03 am

    Agree with Anon 9.01. If they lose in court the FOS decision will not be reversed.

    A tad smug, Mr Lamb!!

  4. All true but not the point of the court case.

    The case had nothing to do with whether the advice was correct or not. This was not disputed, the advice was incorrect and the firm were liable.

    The question for the court was whether a firm can be effectively sued twice for the same thing. Generally speaking this is not allowed for many good reasons, not least certainty and the prudent administration of justice.

    What the judge found was that the Ombudsman’s decision wasn’t really a legal process (just ‘dispute resolution’) and therefore the client could sue in the court.

    All well and good except that the consequence of this haven’t been fully thought through.

    If using the Ombudsman isn’t a legal process then it can’t legally deprive someone of their possessions. In other words firms can no longer have the decision of the Ombudsman enforced against them in court.

    The FSA could impose sanctions for not complying with the Ombudsman’s decision but given the above this is could be called into question.

    I fully expect this decision to be overturned on appeal. But let’s not forget, whether the case stands or not, advisers are liable for their errors.

  5. Any adviser that seems not to have checked the clients capacity for risk then placed all the invested money into any geared investment, including buy to let property with a mortgage, needs to be threatned with jail. This adviser was nieve at minimum, and totally incompetant to recommend this investment, unless it was a small part of a properly balanced portfolio, which I doubt. His supervisor at the time should spend perhaps 2 weeks in jail in order to focus peoples minds.

  6. Level 4 exams detail all this 26th February 2013 at 11:38 am

    I just want to point out that the regulation section of all level 4 exams details that just because the FOS makes an award, doesnt mean the client cannot take legal action….so not sure why there is confusion. After all we are all level 4 as a minimum, so we surely must know this.

  7. @ Anonymous 11.38

    That’s only part of the story. Prior to this case the client had two choices.

    First, accept the Ombudsman’s decision but lose the right to pursue the adviser further in court.

    Second, decline the Ombudsman’s decision and pursue the adviser in court instead.

    After the case (which went against a previous High Court ruling which is remains good law) the client would appear to have the option of accepting the Ombudsman’s decision and suing the adviser.

    A little knowledge is a dangerous thing…

  8. @ Grey Area…you seem a perfect example of a little knowledge.

    The decision made by the FOS is binding only on the firm, and the client still has the legal right to pursue the advisors in court…a little knowledge indeed. I suggest you sit level 4 again, or catch up on your CPD. If you need a reference, IFS FSRE Chapter 14, page 236 paragraph 4. It is also on the FOS documentation. tut tut…what an idiot you must feel. Maybe all the non qualified advisers are still clearly advising un aware of the compliants process.

  9. Hmmm… I’m level 6 in financial planning and investment management and also have a separate level 6 in law. My CPD in both is up to date…

    If you read my last comment it only refers to the client’s choice, I was not talking about the firm.

    The question posed in the most recent court case was whether a client could accept an FOS decision and also sue the adviser in court. The established law (also in the High Court) was that a client couldn’t.

    The judge in this latest case decided that a client could accept the FOS decision and sue, contradicting the previous judgement.

    Because of the way UK law works, both decisions are valid and judges in future cases can take their pick until such time as the Court of Appeal makes its definitive decision. Thus, the current state of the law in this respect is uncertain.

    Unless the IFS reference you give has been updated to account for this case it’s out of date. If it categorically states a client can both accept an FOS decision and sue the adviser it’s wrong. A client might be able to depending on which judge they ask.

  10. To avoid confusion a complainant should be given one of two options; either use the ombudsman service or the courts.

    They shouldnt have the option of using the ombudsman and then backed up by a decision in their favour then move onto the courts.

  11. I dont really care what your qualifications are. The rules state that even if the FOS awards in favour of the client that the can still take the matter to court.

    Doesnt really matter what they should be given the choice of doing. These are the facts.

  12. The good news is that even if a client wins with the FOS a court will not take that decision into account.

    The FOS decides on the basis of what the Ombudsman considers fair and reasonable. A court will apply the law and decide on the basis of the balance of probabilities.

  13. A really good article stimulating a good debate. Morally, like the writer I think the outcome a fair one, but like Grey Area, this case looks a legal mess which needs clearing up.

    Plus both parties need to have equal rights under the law which currently the FOS system doesn’t give I am afraid.

    Many IFA clients are financially better off than their advisers, hence the imbalance is exaserbated.

  14. @ Anonymous 4:59

    If you don’t care about qualifications why bring the subject up in the first place and suggest I re-take them???

    The rules don’t say that. The ability of a client to sue is just part of general legal process.

    DISP 3.6.6R (3) states that if the client accepts the Ombudsman’s award then it is “final and binding on both parties”. This is what they argued about in court. The judge decided that “final” only meant an end to the FOS process and not the legal process. It was the latter interpretation that everyone, including a High Court judge, had worked to previously.

    Phil has summed it up perfectly, it’s a legal mess. It has gone to the Court of Appeal so we will get an answer eventually.

    I don’t have the strength to comment further on this so if you want the last word, you’re welcome…!

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