IFAs face the alarming prospect of being pursued to their grave over negligence claims following a Court of Appeal decision removing the time limit on claims, warns law firm Reynolds Porter Chamberlain.
Lawyers at the City firm say the recent case of Cave v Robinson Jarvis & Rolfe, although unrelated to financial services, means there is no longer an effective time limit to protect IFAs against claims from former clients.
IFAs could face claims for advice given many years ago, even before the 1986 Financial Services Act came into force, and they would need to maintain professional indemnity insurance even in retirement.
Reynolds Porter Chamberlain partner Jonathan Davies says the decision presents “a frightening scenario” for financial advisers, affects their PI insurance and has enormous implications over long-term products such as endowment mortgages.
The law firm, which represents IFAs and PI insurers, says PI cover will have to continue until the IFA's death.
PI insurers will have to rethink how far back they investigate a firm seeking insurance and increase the amount of reserves needed.
IFAs will not be able to throw away their paperwork after six years, as the PIA currently allows them to.
DBS network managing director Alan Taylor says: “This highlights a point the regulator has been making for years that unless something is written down it did not happen.”
IFA Berry Birch & Noble marketing director Steve Ingledew says: “There may not be a flood of claims but it does give cause for concern.”
Aifa director general Paul Smee says: “We do not want to panic the house too much. I would question the wholesale applicability of this, given the level of transparency in IFA business.”