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Independent View

The Equitable Life debacle has been providing some food for thought.

It has probably been difficult for us all to keep the smile from our lips as the “no commission for middlemen” office has run into such spectacular difficulties.

Years of being told thatit having “such low charges” justified clients placing all their eggs in one basket are bound to have made us alittle biased.

But before we smile too much, we should pause to check what liability we, as IFAs, may have following the court ruling.

We have had a number of cases recently that have set me wondering exactly what IFA liability might be in the future and whether we really understand the legal arena in which we now operate.

Last month, we had a claim from a client who had suffered an investment loss due to a fund switch delay by a product provider. We could clearly show that our company had made no error whatsoever and had passed on accurate instructions on the same day.

Nevertheless, the client&#39s approach was that he was not interested in where fault lay – we were his agents and his claim was against us.

Furthermore, he had an opinion from his solicitor that we were the right people to claim against.

We felt pretty sure that we could not be responsible for the misdeeds of another but after our initial checks the doubts started to creep in. We decided to play safe and ask the authorities for guidance.

Things then got interesting. No one, including the regulators and professional indemnity insurers, could tell us for sure whether his claim was invalid.

We were advised to take separate legal advice as it was possible that we were responsible even though we had made no mistake.

This appears to defy logic. After all, we are just middlemen passing on instructions but the law is a strange beast.

Equitable Life has certainly found this to be the case. In February, Alan Nash wrote to his policyholders stating that if they lost in the House of Lords “there would be no significant costs imposed on the society”.

In the event, he nowsays that the “House ofLords&#39 ruling has gone substantially further than the Court of Appeal&#39s”.

In all its communications regarding guaranteed annuity rates, Equitable has ignored IFAs and their clients.

There has been no mention of the rights of policyholders who exercised their open-market options or transferred away from Equitableto get the proper advantages of a Sipp-based drawdown scheme.

This question of IFA liability could be really crucial in the future and one that I think we, as a profession, should pay some attention to. We are living in a much more litigious society and some clients are inclined to sue first and ask questions later.

We are continuing to pursue the answer to our client&#39s case – incidentally, the product provider did make good the client&#39s loss.

I would be most interes-ted to hear if any other IFAs have examples of similar cases and we will certainly be willing to share the answers from our legal advisers with other firms.

The other aspects ofthe Equitable Life case, however, should be largely positive for IFAs.

Probably our greatest benefit to clients is the ability to spread their risk across a range of providers and prevent them being over-exposed to any individual company.

Many tied advisers are very knowledgeable but they cannot provide this service. This case has proved, yet again, just how valuable our service is.

Equitable dealt with some of the brightest clients and professional advisers in the market and yet they fell into this trap of putting all their eggs in one basket. Many of these may now look again at independent advice and the value it can add.

True, independent advice can justify fees or commission and should be seen as a unique service. We must try and inform everyone, particularly the politicians, that there is a real difference between independent and tied advice, regardless of the form of remuneration.

If we can get our message across to the public better, I for one hope never to see again the simplistic claim that “no commission equals best advice”. It was not true in the past and it certainly will not be true in the future.

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