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Would a small firm long-stop have more chance of success?


The only hope advisers have in succeeding in lobbying for a 15 year long-stop is if the back stop on liabilities is limited to small firms, a compliance consultant has argued.

Tenet launched an e-petition last month calling for a cap on advisers’ future liability, which currently has 2,332 signatures. If it reaches 10,000 this could trigger a Government inquiry or a response from the relevant minister.

But compliance consultant Adam Samuel says arguing for a liability cap for so-called “micro-enterprises”, defined by the FCA as a firm with less than 10 employees and a turnover or balance sheet that does not exceed €2m (£1.72m), stands a much greater chance of success. 

Samuel says: “The industry is going about this fight in the wrong way. There is no reason why large insurers or networks should be protected by a 15-year long-stop. But small businesses of the kind we are talking about do need protection. A long-stop for micro-enterprises would solve a lot of problems and is far more acceptable politically.”

He adds advisers need to understand there is no long-stop because problems with advice can take years to surface, and must work on counter-arguments to this central point.

Advisers can set themselves up as a limited company, which means the firm can be wound up and its directors cannot be sued over past liabilities However, the FCA still has the power to pursue enforement action and fines against approved persons who failed to show due diligence whilst working for the wound-up firm. 

Gibson Financial Planning director David Gibson says: “I can see where this idea is coming from, but it does not address the core issue that all advisers need a long-stop in line with other professions.”


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There are 16 comments at the moment, we would love to hear your opinion too.

  1. Derek Bradley ceo Panacea Adviser 14th August 2013 at 9:03 am

    An interesting idea but…….

    You can’t be a bit pregnant, you either are or you are not.

    The Limitations Act applies to all.

  2. It would seem that Adam has confirmed from his expert standpoint what I intimated in my post on the subject.

    Without his deep knowledge, it would seem to be a logical solution. As I said it is no coincidence that it is the large enterprises that are pushing for it and I would have thought that they don’t have a hope in Hell.

    As far as the small firms are concerned (of which I’m one) I guess it could be a half-way house. For complete peace of mind you would also need run off cover.

    Take an example:

    An adviser retires at (say) 65. He’s been running his business for 25 years. So years 1 – 15 are out of the picture. But business transacted in year 25 won’t drop out until our man (or woman) is 80.

    However run off in this scenario would probably be easier and cheaper to obtain than if there was no long stop at all. The Regulator might even find this attractive.

  3. The Bumbling Fool 14th August 2013 at 9:32 am

    And by association you are ‘expert’, Harry?

    No, this matter is of grave importance to the whole industry. Why should larger firms (presumably this includes networks) be disadvantaged.

    Were such a fiasco to come about you would find firms breaking themselves into smaller 10 person units simply to fit the longstop template.

    This country has always held itself up to be a bastion of fairness. Why should membership of this industry be an excuse for the removal of a legal right?

  4. The fact is that networks are comprised of smaller businesses and if the long stop does not apply to them then they will be chasing the long departed business for recompense. I have a neighbour who used to work for Allied Dunbar many years ago and occasionally they contact him if a complaint has been made.

    Can someone please advise me why the FSA/FCA are able to ignore (or break) the law of the land in the Statute of Limitations Act ? and why the law is not applied equally to all ?

  5. Frank Dennis

    The answer to your question is simply ‘because they can’ !!!!

    That question is one which has perplexed many of us since the demise of the PIA and the PIA Ombudsman who DID recognise the Statutes of Limitation and Latent Damage.

  6. I think this might have a chance of working and the regulator may well like it for one big reason. As this is not even going to be considered for a few years yet (if at all) the chances of Micro firms still being around due to the huge hike in Cap Ad there will be very few firms left to which it could apply. That being the case we are giving the FCA the chance to say “we listened to the indusrty and acted upon their concerns….”. The reality is the big firms/networks are fighting for this as because they can all club huge resources together to do so. At the heels of the hunt if a network gets stung for claims long after an adviser retires then they can and will come after him/her as per their contracts. They (and we) would prefer this not to happen and a long stop should be returned to the table for us all to afford us the same protection in law as everyone else in the land. Unfortunately I do not think this will happen as the PR would crucify the regulator for caving in to industry pressure. We can but only keep fighting for it and hope that 10,000 signatures are achieverd on the e-petition for some action in Parliament to be taken.

  7. @Bumbling Fool
    I would never claim to be an expert – or to tell others what they should or should not do. I merely commented on what I saw as a piece of logic. The big firms would never obtain run off cover at an affordable price. They should have better chances of continuity and be better capitalised than the small guys. That the Networks chose to (unfairly in my view) continue to chase advisers after they have retired if a complaint is received, is something that members should not put up with. (Amongst many other things). After all the Networks charge them enough for being under what many regard as an umbrella, but when it rains they still seem to get soaking wet. Perhaps Network members need to reconsider their position?
    Members have to adhere to the Network compliance function (for which they pay), pay their portion of PII and FSCS costs in addition to Network charges. One would have thought that in such circumstances the Networks would be obliged to not chase individuals for compensation claims, but meet these themselves. Otherwise I wonder what is the point?
    That delineating Long Stop between large and small is a potential problem I quite see, but that is something I would leave to the experts.

  8. @ Derek Bradley and The Bumbling Fool

    I don’t believe tha analogy of not being a bit pregnant is necessarily relevant Derek, although it is very tempting to use such an analogy as an argument, there are plenty of occasions, in life, where there are a lot more complicated issues and the situation is not as black and white as that.
    As for this country being a bastion of fairness, Bumbling Fool, you have to be kidding!

    There is little doubt that large institutions are riskier to deal with (on past evidence anyway) because I believe there is a feeling of not having personal responsibility for the advice you are giving and that there will be little, or nil, comeback for ones actions. I believe this lack of resonsibilty goes all the way up to the top of a company, where the directors can make huge salaries and bonuses and walk away when things go wrong (see also regulators and bankers).

    A shoplifter is less likely to be given a life sentence than an armed robber even though the basic crime is more or less the same. Not many people would argue that that is not fair. Most small IFAs would be far more likely to have sleepness nights during their retirement (and I don’t mean because the quality of their advice was poor) than a tied agent.

    I believe there is some merit in the Adam Samuel is recommending.

  9. In his review of the Financial Ombudsman Service, published in April 2008 Lord Hunt stated “I do not believe, however, that it is possible to specify a “long stop” date beyond which complaints cannot be considered, because the point at which the customer becomes aware of possible detriment will vary significantly.” And that is the point which I am afraid we will struggle to overturn. We need to look at the consumer’s point of view too.
    Interestingly though, Lord Hunt did recommend that the FOS should clearly document its general approach in approaching the assessment of evidence in cases relating to sales made over 6 years ago to establish greater certainty on the value placed on generic information on company practice and customer recollection.
    As for the Statute of Limitations Act – there is also another statutory act, the FCA’s statutory objective of ensuring the appropriate level of consumer protection if such a clause as a 15 year long stop excludes or restricts any liability that a firm has to a consumer bringing a claim using the financial ombudsman scheme or the courts.

  10. Becoming a headcase IFA 14th August 2013 at 11:01 am

    Get your relatives to sign the petition as well.

  11. @Sam Caunt
    The fact remains that if a client was advised by a lawyer an accountant and a financial adviser in 1998, only the adviser remains liable for the advice.

  12. Yes, but comparisons never work in law. And the FCA are probably correct in law doing what they do. You could argue that accountants and lawyers should be responsible too!

  13. You could indeed Sam but they are not and that is the whole point.
    That is where the strong resentment against the regulator comes from.

  14. Resentment I can understand albeit a negative emotion. The reality is, as I discovered when the FCA kindly responded to my complaint about the possibility of paying twice for a CCL, that the real culpits are MPs and Governments that allow minority groups to be treated like something you find on the pavement. If we were an ethnic minority we would have rights and political influence out of all proportion to our electoral power. But we are not and have no rights to be treated as others.
    But in the case of the long stop it should be the same treatment for all and if someone comes up to retirement and finds they were shafted 20 years earlier and have less income than they were expecting why shouldn’t they get compensation?

  15. @Sam
    you mean as in the case of an adviser who was expecting to sell his business, after 40 years work?
    but because of the endless, mindless interference from the regulator now finds it is almost worthless?

  16. It is incorrect to say that FOS is not applying the law when it declines to apply the Limitation Act. Parliament required FOS to reach fair and reasonable results in sections 228 and 229 of FSMA. This ruled out the application of the Limitation Act to FOS cases. The High Court has expressed that view as being the law in the Bamber case. Parliament has had two other opportunities to consider the subject in the 2010 and 2012 Financial Services Act. It declined to make any change. If FOS was to apply the long-stop in the way that the Courts do, it would be breaking the law actually. It would also being going against Parliament’s will as expressed in three pieces of legislation.

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