View more on these topics

Legal lessons for advisers on duty of care


A recent judgement of the High Court (Worthing and another v Lloyds Bank plc [2015] EWHC 2836 (QB)) has provided some helpful guidance on continuing duties of care for financial advisers. The case involved a traditional client/adviser relationship, with initial investment advice being provided by the adviser followed by periodic reviews in subsequent years.

The clients involved alleged they had been provided with unsuitable investment advice at the outset. The date of the original advice was more than six years ago, outside the statutory limitation period, and so a claim simply that the advice had been negligent and the clients had suffered loss as a result was statute barred.

Instead, the clients argued the IFA was under a continuing duty (even in the absence of any subsequent reviews) to rectify the negligent advice they alleged had been provided at the outset and/or were negligent not to have rectified the advice in subsequent reviews that were in fact provided.

Lesson one

What is clear from the Worthing case is that a robust advice process will always be valuable. The judge dismissed the claim on the basis the original advice was in fact suitable. This was largely due to the adviser having kept full and contemporaneous records of the procedure followed and advice provided to the claimants. The records demonstrated a thoughtful and thorough process had been gone through to (a) assess the claimants’ risk category (b) arrive at the recommendations made, and (c) ensure the claimants understood the advice provided.

The issue of recording your advice process and how suitability is established is not new and the FCA recently emphasised again just how important it is to consider the client’s capacity for loss. This case really drives that point home.

Lesson two

What is also clear from the case is that it is in advisers’ interests to clearly set out the scope of their advice and duties in the client agreement or other contractual documentation between the firm and the client.

The judge in the Worthing case concluded the law did not support and the contractual documentation did not impose “a strict obligation, continuing from moment to moment, to correct any initial mistake in the original investment advice” (that is, in the absence of any agreed reviews).

It is important firms are clear in their documentation about what their duties are each time they advise a client, and indeed in between reviews. Firms should not unintentionally assume duties to their clients that apply “moment to moment” and should equally be clear about what is covered in subsequent reviews.

This does not prevent a client claiming for negligent advice that is within the six-year limitation period. It does, however, make it harder, if the contractual documentation is clear, for a claimant to try and circumvent the limitation period by claiming a continuing duty exists to correct the original negligent advice (provided outside the limitation period). This duty has been breached within the limitation period and is therefore not statute barred. If such a continuing duty did exist, it would ride roughshod over the principle of a six-year limitation period.

The more difficult question is what duties may apply where subsequent reviews involve an assessment by the adviser of the clients’ objectives and attitude to risk, etc, and consideration of whether those things have changed. The important thing is to be clear about what you are and are not agreeing to do.

This case relates to a very common advice model but the key points – to have a robust process and clear contractual documentation – are relevant to all aspects of financial advice. The case may also come as a relief for advisers who may sometimes consider no matter what they do, a successful claim is always possible.

While the court’s approach in Worthing is helpful it does not, of course, bind the Financial Ombudsman Service. The FOS does impose a similar six-year limitation period on claims (plus a three year “date of knowledge” period, but that was not relevant in this case) but it can decide cases on what it considers is “fair and reasonable” and is not bound by the law. On such a fundamental point, however, it will be interesting to see if the FOS does seek to depart significantly from the approach adopted by the court.



Aviva eyes safety features for non-advised drawdown

Aviva is exploring the addition of automatic functions that aim to protect the first wave of non-advised drawdown customers. The UK’s largest life company launched a direct-to-consumer platform in June following the introduction of the pension freedoms, which have seen thousands of people engage with non-advised drawdown products. Experts have warned that customers entering drawdown without advice risk […]

Seven Families one year on: What has the campaign achieved for protection?

The Seven Families campaign has been a “springboard” to improving consumer awareness of protection, say industry experts. One year on from the campaign’s launch, commentators say the initiative’s greatest successes have been improving adviser engagement and bringing industry funding together. But others say the project has failed to ignite consumers’ interest in the way many […]


SFO charges ex-Barclays and Deutsche employees over interest rate rigging

The Serious Fraud Office has today launched criminal proceedings against 10 Deutsche Bank and Barclays Bank employees over the manipulation of Euribor. The defendants will make their first appearance at Westminster Magistrates’ Court on 11 January. The six Deutsche Bank employees charged are Christian Bittar, Achim Kraemer, Andreas Hauschild, Joerg Vogt, Ardalan Gharagozlou and Kai-Uwe […]


What would EU exit mean for UK financial services?

MPs have clashed over what the impact on the financial services industry would be of the UK leaving the European Union. In a report published last week, shadow Europe minister Pat McFadden warns that firms could face a less flexible process for complying with EU financial services rules if the UK were to leave the union. […]


News and expert analysis straight to your inbox

Sign up


There are 4 comments at the moment, we would love to hear your opinion too.

  1. The last paragraph says it all about the problems advisers experience and concerns surrounding the FOS “but it can decide cases on what it considers is “fair and reasonable” and is not bound by the law”. The current review being undertaken by the FCA must insure that the FOS has to apply the law and not what it feels.

    It is also interesting to note that when the law is applied, with clear documentation to support the system works. Such cases help to close the biggest challenge and fear of advisers, that what ever we do, document we will be found guilty. Recently I am sure we all feel advisers are judged guilty and have to prove our innocence.

    Interesting article, thank you.

  2. Having read the case I personal feel that FOS may have taken a similar line to the courts. It is a document worth reading as it certainly as given me a jolt to refine my approach.

  3. Thank you, a very insightful article and I will be adjusting my Client Agreement to cater for such legal precedent.

  4. headbelowthe parapet 18th November 2015 at 11:10 am

    Having read the judgment it is clear that taking and keeping notes is vital – the claimants story as to why they decided to surrender their investments changed between their written and oral statements (because they needed to repay an overdraft [written] and because they lost money due to being placed in the wrong risk category [oral]). The extensive notes taken and retained by the adviser saved the day and were considered as “best starting point when considering what happened”.

    Interestingly, the judge time barred the original advice and was reluctant to find that the adviser (the bank) was under an open ended obligation to update the original advice in order to get around the Limitation Act 1980.

Leave a comment