Claims against financial advisors for alleged negligent advice
Sportspeople can earn significant sums of money in a short period of time. Whilst the earnings of individuals in other industries might increase over a long career as they get more senior, a sportsperson’s career can be short and their earning potential much lower later in life. Sound financial planning and wealth management is particularly important for such individuals.
For this reason, sportspeople often seek advice from financial advisors and other professionals, such as accountants, as to how best to manage their money and plan for life after sport. This may also be because, like many people, they have limited knowledge of matters relating to finance or investment and/or because they have limited time, because their focus is on their playing career.
Whilst there are many excellent advisors, unfortunately there are some who are less scrupulous and others who, whilst generally competent, do make mistakes. Fraudulent or negligent actions by financial advisors can cause substantial harm to their clients. High net worth individuals, including professional sportspeople, are often approached in relation to unregulated investments or non-mainstream tax planning that presents significant financial risk; losses arising can be substantial, even life-changing. Losses of this kind can be particularly damaging for sportspeople whose income is lower after their career has ended.
Losses might arise, for example, as a result of an unregulated investment (such as a collective investment scheme which, it is said, will fund property development), or from investment in bonds or loan notes, insurance products, other types of lending, pensions, tax mitigation vehicles and other financial products such as complex derivatives.
An individual who has suffered loss might, in the first instance, look to the company which promoted and/or managed the relevant investment/product. However, there may be a complex structure of companies involved, including some which are outside of the UK, or which may otherwise be difficult to trace. Alternatively, the company or companies may have insufficient assets to meet a claim or even have gone out of business. In these circumstances, or in any case, an individual might question the advice they received from their financial advisor. Typically, financial advisors are regulated by the Financial Conduct Authority and are required to conduct their business in line with the FCA’s rules and principles. These include a requirement to hold professional indemnity insurance, which might mean they are better able to meet a claim than other parties involved.
Potential liability of financial advisors
A financial advisor has a duty to act with reasonable skill and care in relation to the advice it provides to its clients.
If a financial advisor lacked the degree of skill and care ordinarily exercised by a reasonably competent financial advisor, they could be liable in professional negligence for losses caused by their advice.
Conduct which may amount to professional negligence includes:
- Failing adequately to assess a client’s circumstances, needs and/or financial understanding
- Advising / recommending an investment unsuited to the circumstances (including risk profile) and/or needs of a client
- Failing to carry out sufficient due diligence in relation to an investment
- Failing to warn a client of the risks of an investment
- Failing to ensure the client understood the risks of an investment
The above may also to amount to an actionable breach of regulatory duty, in that the financial advisor will have failed to conduct its business in line with the rules of the FCA.
Evidence as to the relationship between the individual and the financial advisor will be important, as will evidence of the information and advice provided about the investment (which may have been written or oral, or both) and details of the losses suffered.
A claim in professional negligence will only succeed if the individual relied on the advice given. Where there is advice but no reliance upon it when making an investment decision, the financial advisor would not be liable, even if loss has resulted from that same investment.
It is important to note that there are strict time-limits in which to bring claims against a financial advisor. Generally speaking, someone has 6 years from the date that the relevant investment was made. There are exceptions to this, in particular where the individual did not know they had suffered loss at the time they made the investment. In this scenario, an individual could have 3 years from this date, even if it started after the original 6-year period. However, there is a long stop date of 15 years after the negligent act (unless fraud is involved) so a financial advisor’s exposure to a claim in the courts is not indefinite.
Options for bringing claims against financial advisors
Typically, an individual (or a representative on their behalf) would first write to the financial advisor to complain about the advice they received and seek compensation.
If the financial advisor is no longer in business, a claim to the Financial Services Compensation Scheme might be available. However, the FSCS is only able to make limited awards in some circumstances and can only offer one award per person, per failed firm, which for investments would not exceed £85,000.
If the financial advisor is still in business but denies the claim or is not prepared to resolve it, the individual could refer their complaint to the Financial Ombudsman Service. The FOS resolves disputes involving firms regulated by the FCA. It is a free and informal service but individuals can benefit from the assistance of a professional representative, such as a solicitor, to help them through the process, particularly where the claim is complex. Depending on the timing of the events in question, the FOS can make an enforceable decision which requires a firm regulated by the FCA to pay an individual up to £445,000 in compensation. In contrast with the courts, there is no 15 year long stop when it comes to complaints through the FOS, making it an option for negligence dating back many years which has only come to light within the last 3 years.
If losses exceed the relevant maximum enforceable sum available through the FOS, another option would be to bring a court claim. These can be expensive, but a number of funding options might be available to meet the various costs, meaning that an individual may not need to fund a claim from their own resources. A solicitor would be able to provide information about these options. Importantly, unlike the FOS or FSCS, there is no limit on the amount of money that a court can award, which can be important given the level of losses which can be suffered by sportspeople.
Speak to our team
If you have any concerns about negligent advice from financial advisors, please contact our expert financial litigation team to discuss your situation on 0800 652 8025 or contact us online
Posted:
