Legal abilities: When professional investment advice goes bad

As employers and organisations responsible for students, as well as public money, schools have a number of legal responsibilities. To ensure your school is compliant and that you are meeting legislative requirements it is often necessary to seek professional advice – but what happens when the advice you receive is poor? Sarah Perry, head of dispute resolution at law firm Wright Hassall, explains that you can seek redress when professional advice goes wrong, but the clock is ticking

There has been a sharp rise in claims against financial advisers and mostly these concern financial investment misselling and tax avoidance schemes. Financial investment misselling claims usually arise when someone makes an investment following professional advice but, when they try to draw down on their investment, they are unable to.

Where an individual has lost money – which is easily traceable – a potential negligence claim can be identified very quickly but, with tax planning schemes, it can take years for a claim to materialise following an open enquiry by HMRC.

Evidence and actions

For all claims it’s essential to collate all communication to establish what the individual was advised and the risks they were prepared to accept. An investor should work with a solicitor to establish the causation position; for example, had appropriate advice been given, what would they have done, etc.

The courts recognise that matters are being assessed retrospectively so clients have to establish what their mind-set and plans were at the time – ideally with documentary evidence. It’s essential to establish what ‘Know Your Client’ work was undertaken and whether the adviser understood what the investor wanted out of the investment, the timeline, the returns expected, the risk the investor would accept and how much of their portfolio they were willing to stake.

The advisor should assess the investor’s risk profile to decide whether a scheme is appropriate and any lack of such information could form the basis of a negligence claim

Without this conversation it’s unlikely the adviser can justify their investment decisions. With tax schemes, an investor must have had all the risks highlighted and been given the opportunity to make an informed decision, supported by documentary evidence. The advisor should assess the investor’s risk profile to decide whether a scheme is appropriate and any lack of such information could form the basis of a negligence claim.

When money is lost, or HMRC has served an ‘Accelerated Payment Notice’, ‘Follower Notice’ or ‘Demand for Payment’, the investor should speak to an experienced solicitor about a potential claim for professional negligence. Any claim must be commenced prior to the limitation date as determined by the Limitation Act 1980, although the valid period and length of time in which to bring a claim will vary.

You might also like...  Supreme court upholds ban on term-time holidays

Typically, the starting point is six years from the breach of contract. In tax avoidance cases – due to the delay in HMRC bringing their claim – it is usually three years from the date an investor is reasonably aware of a potential claim.

If limitation is approaching, the solicitor can initiate a ‘Standstill Agreement’ which freezes time for a period agreed with the adviser to allow investigation before proceedings are issued. Alternatively, protective proceedings can be issued, with a ‘Claim Form at Court’ allowing four months to formalise the claim and serve the necessary documents on the adviser.

Any claim must be commenced prior to the limitation date as determined by the Limitation Act 1980, although the valid period and length of time in which to bring a claim will vary

Compensation

Your solicitor will decide whether to claim through the Financial Ombudsman Service for claims less than £150,000, or the Financial Services Compensation Scheme when the adviser has ceased trading (depending on insurance) which is likely to be subject to a cap of £50,000 or the courts.

If proceedings are commenced the solicitor will draft a ‘Letter before Claim’ as part of the ‘Professional Negligence Pre-Action Protocol’ which gives the adviser three months and three weeks to respond. Once issued, the parties must adhere to the timeframes imposed by the court, with any trial likely to start in nine to 24 months’ time.

It’s important to remember, the reason most people don’t receive compensation is that they do not make a claim or wait too long before talking to a solicitor.

Disclaimer: This article aims to introduce readers to legal issues of concern to investors. It is no substitute for taking appropriate specialist advice in individual cases.

About the firm:
Wright Hassall is a top-ranked firm of solicitors based in Warwickshire, providing legal services to organisations and individuals, including: corporate and commercial law; litigation and dispute resolution; employment law and property law; professional negligence and private client matters.

Don’t forget to follow us on Twitter, like us on Facebook, or connect with us on LinkedIn!