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Providers urged to retrain broker consultants after High Court ruling

Product providers are being urged to retrain broker consultants to ensure they are meeting Cob rules on what does and does not constitute advice, after yesterday’s Scottish Equitable High Court ruling.

In yesterday’s High Court judgement Scottish Equitable was ordered to compensate an IFA’s client, Michael Walker, with a provision sum of £700,000 for all his losses, both past and future, caused by advice from the provider’s broker consultant that the Court ruled was unauthorised.

The consultant had been found to have provided unauthorised advice whilst sitting in on meetings with Walker and his IFA.

Scot Eq denied throughout the proceedings that the consultant had given him any advice and is considering its options regarding an appeal.

Leading compliance consultant Adam Samuel says where broker consultants from providers are giving advice, even if alongside an IFA, they are at risk of breaching Conduct of Business rules.

Samuel says: “Brokers should explain when they are in front of a client they are only there to offer technical support. If this is not done, they could find themselves in breach.”

He says the judgement indicates that the broker consultant told the client at the meetings ‘if it was up to me, I would do this …’ which has been confirmed as constituting advice.

Samuel says: “This case points so clearly to the need for a whole raft of retraining for broker consultants of product providers.

“It looks as though what happened is that Scot Eq took the hit because no one was interested in chasing Inter-Alliance because they knew they couldn’t get any money out of them.”

Fishburns partner Harriet Quiney says: “This is an interesting decision for financial advisers as it shows that product providers cannot always hide behind the fact that a financial adviser assisted a customer in making an investment decision.

“However, in this particular case it was found that a representative of the product provider attended two key meetings with the customer and provided advice directly to him which caused him to transfer out of his employer’s pension scheme.

“Had the product provider’s representative not attended those meetings or been found not to have given advice direct to the customer, it is likely that the financial adviser would have been liable rather than the product provider.

“While it is still not easy for financial advisers to recover from product providers when their products prove to be unsuitable and customers bring claims, this case, along with Seymour v Ockwell, marks an important step away from product providers’ apparent immunity from suit.”


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