Recently there has been a sharp rise in claims against financial advisers and professionals, mostly concerning financial investment misselling and tax avoidance schemes.
Financial investment misselling claims usually arise when someone invests into a fund following professional advice, but when they try to drawdown on their investment, they can’t.
With financial investments where an individual has lost money, which is easily traceable, a potential negligence claim can be identified very quickly.
When claims relate to tax planning schemes, it can take years for a claim to materialise following an open enquiry from HMRC into a previous tax return.
Evidence and actions
For all claims, it’s essential to collate all communication to establish what the individual was advised and what risk they were prepared to accept.
Having appointed a solicitor with experience of litigating against professional advisers, an investor will still have to establish the causation position i.e., had appropriate advice been given, etc.
The courts recognise parties assessing matters retrospectively with perfect hindsight, so all clients have to establish, ideally with documentary evidence, what their mindset and plans were at the time.
It’s essential to establish what ‘know your client’ work was undertaken and whether the adviser understood:
• What the individual wanted out of the investment
• The timeline over which the investment was to run
• What likely returns the investor would want
• How much risk the investor was willing to accept
• How much of their portfolio the investor was willing to stake
If no such conversation took place, it is unlikely the adviser can prove justification for 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, with documentary evidence sent to the client.
The advisor should have assessed the investor’s risk profile to know whether a scheme is appropriate, and if this information is unavailable, it could form the basis of a negligence claim.
Time for a solicitor
When money has been lost or HMRC have served an accelerated payment notice, follower notice or demand for payment, the individual concerned should speak to an experienced solicitor to discuss the possibility of a 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.
Generally, the starting point is six years from the breach of contract, but often in tax avoidance cases, due to the delay in HMRC bringing their claim, it is three years from the date an investor is reasonably put on notice as to the potential for a claim.
If limitation is approaching, the solicitor has two options:
• work with the negligent professional to initiate a standstill agreement to allow investigation before proceedings are issued, which freezes time for a period agreed between the parties
• 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
The solicitor will decide whether to pursue the claim through the Financial Ombudsman Service (FOS), Financial Services Compensation Scheme (FSCS) or the courts.
If professional negligence proceedings are commenced, as part of the professional negligence pre-action protocol, the solicitor will draft a letter before claim, which gives the negligent adviser or their insurers three months and three weeks to respond.
If proceedings are issued, the parties must adhere to the timeframes imposed by the court, with any trial likely to start in nine to 24 months’ time.
The FOS may be appropriate if the claim is for less than £150,000. If the professional has gone out of business then a claim to the FSCS may be appropriate (depending on the position with ongoing insurance), however, this is likely to be subject to a cap of £50,000.
When an individual makes investment decisions based on advice from professionals, there are warning signs to watch for and actions to mitigate losses. But the reason most people never receive the compensation they deserve is because they never make a claim or wait too long before talking to a solicitor.
About the author: Sarah Perry is managing partner of law firm Wright Hassall and also head of the dispute resolution group. She specialises in professional negligence and fraud claims against all types of professionals. She also undertakes general commercial contract disputes