I help people pursue compensation where they've been missold a financial product or received bad advice. I am the person you don’t want writing you a letter.
Usually, by the time I see someone, things are pretty bad. There is probably no way back and they have suffered large, permanent losses. They may have complained but been rebuffed.
My job is to investigate what has happened. I look at the advice a client has been given, the product they invested in, what was and wasn't discussed and what they've lost.
This is a window into my process when approaching an allegation of pension or investment misselling, with some insider tips on how to protect your business against a damaging and potentially costly compensation claim.
Write everything down and file it correctly
This may seem obvious, but it can easily get missed when you're busy.
My first step in any investigation is to call for the files. If they're thin, that's a big red flag. If information has not been recorded, discussions haven't been noted, or documents haven't been filed, it is a sure sign that processes may not have been followed and mistakes may well have been made.
Without documentation, the court will consider each side’s oral evidence but my experience is the judge will probably give preference to the client's version of events. Without compelling evidence to the contrary, the judge is likely to be persuaded that the adviser can't possibly remember every conversation with every client, particularly where they've advised several clients in a similar way.
Have a lawyer review your terms of business
The first document I look for in the file is the terms and conditions of business. These documents are often overlooked as just something the regulator requires you to send out, with no real bearing on the relationship between you and your client.
Nothing could be further from the truth. This document is central to your relationship and, in particular, the extent of any liability and the calculation of damages.
Many advisers I speak to have had their contract drafted by a compliance officer. While this is very sensible from a regulatory perspective, it can leave you at risk where legal claims are concerned.
The contract between you and your client will set out the terms of the relationship between you and, most importantly, the scope of your legal duty to your client. It sets out not just what you will do, but also what you won’t. If your contract is not clear, the law will define your role as adviser as widely as possible.
Within your contract, you can use clauses such as disclaimers, limits of liability and time bars to limit the likelihood of a spurious complaint being successful. A judge is likely to find in favour of an adviser who has acted in accordance with their contractual terms, even in cases where more could (and should) have been done to make sure the client understood exactly what they were signing up to.
Ask a trusted peer to review your advice
Once I've checked the terms and conditions, I look at the advice that's been given. Most misselling or professional negligence claims are based on:
- Breach of contract
- Breach of statutory duty (breach of the FCA’s rulebook)
- Breach of fiduciary duty
Each of these claims requires me to consider the quality of the advice. Any service contract will imply a requirement to act with reasonable skill and care. The FCA’s Conduct of Business Sourcebook (COBS) rules require advice to be suitable, while the common law action of negligence requires a professional to advise to the standard of a 'reasonably competent' financial adviser.
However, it's not up to me to decide whether or not the advice is suitable. I can't tell a judge what advice ought to have been given – this is the role of the adviser’s peers.
The defendant’s solicitor and I will usually each instruct an IFA as an expert witness to look at the file. With the guidance of these expert witnesses the judge must then decide what the standard of a reasonably competent adviser is, and whether the advice fell below that standard.
Where there is already evidence on the file that tricky advice has been peer-reviewed, this is good evidence that it meets the required standard. Clearly the information given to the independent peer should be anonymised, so as to not breach the dreaded General Data Protection Regulation.
Identify potential conflicts of interest
Where there are economic drivers, it is easy to show the court the motivation for the questionable advice.
In a leading case arising from the banking crisis – Rubenstein v HSBC – Mr Rubenstein was advised to invest cash into the AIG Premier Access bond, exposing him to the markets where he suffered large capital losses. The court held that he ought to have invested only in cash. Here the advice was simply motivated by commission.
With commission now banned, contingent charging is a major cause of potential conflict. Where there is a potential conflict it must be discussed with your client and the conflict managed. And remember the importance of writing everything down and filing it correctly.
Set out different scenarios
Always try to envisage what could go wrong. Clients are constantly telling me: “I never knew ...”, “I didn’t ask the right questions”, or “I trusted him”. Setting out clear examples of what might happen in different scenarios will go some way to avoiding this.
The files I close and tell the client there is no case to answer are the ones where:
- Each conversation with the client has been adequately recorded
- The discussions and explanations have been set out in detail
- The terms and conditions of business show exactly what the adviser will do (and it's been done)
- The adviser properly understands the product or investments and has explained them clearly and in plain English to the client
- The adviser has also clearly explained the reasons for making the investment and any potential downsides.
Of course, these files rarely reach me because clients taken care of in this way aren't the ones that complain.