Earlier this year, a High Court judge decided a case of general interest to financial advisers, in which one had taken over from another because the client was not satisfied with the advice he had received from the first.
Often in such cases, the second adviser is specifically instructed to review the advice given by the earlier one. This was not one of those cases.
Briefly, the facts were as follows. In about August 2000, the client, a Mr Denning, instructed Alexander Forbes Financial Services Ltd to advise on the transfer of his deferred benefits from his previous employer’s final salary pension scheme to a personal pension.
Acting on the advice from AF, Denning made the transfer later in 2000. But he became dissatisfied with the investment performance of the personal pension and the advice he was getting from AF.
In August 2008, Denning instructed Greenhalgh Financial Services Ltd to take over from AF and to provide advice on the management of his investments. GFS was not being asked to advise on the merits of the transfer to the personal pension in 2000.
The terms of business agreed between GFS and Denning were to advise from then on and to arrange appropriate transactions. Once that advice had been given and any transactions arranged, GFS would not keep them under review, and would advise in the future only on specific request. It was specifically recorded that it was not authorised or qualified to give legal advice.
GFS did advise Denning from time to time from August 2008 onwards and no complaint was made of that advice.
In the meantime, Denning pursued a complaint against AF. That was rejected by AF in October 2008 and so Denning took his complaint to the Financial Ombudsman Service.
In 2012, the ombudsman rejected the complaint. Denning then brought a court action against AF but that was abandoned because he accepted the claim was likely to be time-barred.
Undeterred by those setbacks, in September 2014, Denning began proceedings against GFS. The basis of the claim was that:
- The advice given by AF in August 2000 to transfer his pension was negligent
- GFS negligently failed to review that advice given by AF
- GFS negligently failed to advise Denning that delay on his part could cause a complaint or claim to become time-barred
- But for the negligence of GFS, Denning would have issued proceedings against AF in or about late-2008 and would have succeeded in recovering damages from AF.
GFS denied it owed any duty to advise Denning upon the merits of the advice to transfer in 2000. It relied on the fact the job it was engaged to do, as confirmed by its terms of business, was to advise on the claimant’s investments from August 2008 onwards.
It also denied it owed any duty to advise on a possible legal action against AF or as to relevant limitation periods. Again, it relied on its terms of business.
GFS applied to the court to strike out the claim and to enter summary judgment in favour of it, essentially on the grounds the claim did not disclose a reasonable cause of action and had no real prospect of success if the case went on to trial. The judge granted the application and entered judgment in favour of GFS.
The judge agreed GFS owed no duty to review the original advice given by AF or to give any legal advice. In particular, the GFS terms of business were clear: they were prospective. In fact, GFS was never asked to carry out a review of the AF advice and did not have the relevant data or information to do so.
In order to do the job it had agreed to do, GFS did not need to review the advice to transfer which had been given and acted upon eight years earlier.
The judge applied the reasoning of a case decided in 1979 in a solicitor’s negligence claim, but generally applicable to professional people, and applied many times. The extent of a professional person’s duties “depends upon the terms and limits of that retainer [i.e. the terms of business] and any duty of care to be implied must be directly related to what he is instructed to do”; and “the court must beware of imposing upon [professional people] duties which go beyond the scope of what they are requested and undertake to do”.
The message for advisers is to make sure the terms of business with a client accurately reflect what the adviser has been instructed, and has agreed, to do.
Equally, those terms must not promise something which the adviser cannot or does not intend to do. So, for example, do not promise to carry out periodic reviews in the future unless willing and able to do so.
Peter Hamilton is a barrister specialising in financial services at 4 Pump Court and co-founder of moneymatterslegal.co.uk