The pension review was an expensive business all round. The lessons learned are that risk management and claims' prevention are key elements of the new breed of financial planning practice. The tenets of this new regime are that:
All clients must be treated as if they know nothing about investment business.
All clients are potential claimants against you.
You have no control over politically led or regulatorled reviews.
It is a sad fact that clients stand by you until they are practically invited to claim against you. The pension review showed that good clients, including friends and even relatives, see the professional indemnity insurers as some sort of compensation fund.
With excesses on the increase and many types of business practically uninsurable, you need to be aware of your risk management.
Make sure your warnings are current and relevant. You are not in a winning position with warnings. Make them too simple and it will be argued that they do not cover you but make them too complicated and it will be argued that the client did not understand them.
Your fact-find information needs to be as current as possible. It is sometimes alleged that if the file misses some information from the audit trail, it must be negligent. This is simply incorrect. The negligence is the advice. When the advice occurs, you must make sure you get the client to sign a disclaimer (see above).
I cannot guarantee this letter would protect you in all circumstances but it does demonstrate that the client took your advice with their eyes open. It seems wholly unfair to punish someone 10 years later when thinking has advanced, based on standards which did not exist at the time of the advice.
With such a letter for each piece of advice, you cannot do yourself any harm.
Compliance/training and competence protection
All network members pay for their network to provide them with the core regulatory services. The network is under a duty to ensure that these services are provided competently and that they offer protection and guidance.
When the wheels come off, the standard general indemnity clauses are used to pass the loss and damage back on to the member firms. This seems to be logically incorrect as, in many cases, the failing in the provision of compliance or T&C leads to the client suffering loss. The other argument is that if you are paying to be guided and, by virtue of this, protected, you should not have losses passed back to you at the first opportunity.
It would seem good risk management practice to record each and very compliance/T&C review with a letter and file note (see left).
The need for risk management is acute as we move into the new era. Clients should not be afraid to confirm that they have read your advice. Networks should not be afraid to confirm that they are adequately delivering their services to protect you.
To do nothing is leaving things to the hand of fate. Pension review, FSAVC review, endowment review, Cat-standard review?
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