Regulatory Legal Partner founder Gareth Fatchett says a county court judgment passed in favour of John Petrie against Standard Life means that providers may be liable if a fund has the wrong risk rating.
The case related to an investment made into the Standard Life sterling one pension fund, a cash fund in which Mr Petrie placed over £500,000 in November 2008, only for the fund to fall in value a few days later.
The judgment of the court was that Standard Life misrepresented the risk profile of the fund by making it appear lower risk than it actually was.
Fatchett says the decision is significant as it shows that providers have some responsibility for the risk-rating of funds, which he says they have trad-itionally tried to steer away from.
He says: “The judgment says if the overarching risk rating misleads the average client, there is provider responsibility on behalf of the client.
“Although it centres on the Petrie case, the judgment applies to all products and risk ratings. This is a good thing for the IFA community as it sets out a very basic principle that IFAs can rely on the risk ratings of providers. If you draw a parallel with the Arch finance fund, you can see the same arguments and issues would apply.”
However, last month, the Financial Ombudsman Service upheld a complaint against an adviser who it deemed to have inappropriately placed a “low to medium-risk” client into the CF Arch cru investment portfolio.
Candidmoney.com founder Justin Modray says: “The line is 50/50 between the provider and the adviser. In the Arch cru fund case, I believe the provider did not make the risks clear enough but the advisers need to get under the bonnet of the products to see what it is they are and what they do.”