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Professional negligence claims against financial advisers

Whilst many professionals in the financial industry are regulated by the Financial Conduct Authority (FCA) and are duty bound to adhere to the FCA’s (or another professional body’s) rules and regulations, there are also legal and other duties owed to you by professionals providing financial advice.

Unfortunately, professional advice is not always guaranteed to be perfect and can occasionally lead to you as the client being let down and, in some cases, suffer a financial loss. If you have suffered a financial loss, you may be able to make a claim against the professional if they were negligent in their duties.

In order to guide you if you find yourself in this difficult situation, this article will cover:

What is professional negligence?

Put simply, a professional owes their client what’s known as a duty of care and this extends to the financial adviser/client relationship. If your financial adviser hasn’t performed their role with the care and skill that is expected of a reasonably competent financial adviser (in other words, they have breached their duty of care), they could be seen as someone that has been professionally negligent.

How do you know if your financial adviser has been negligent?

Often a significant loss is an indicator of negligence on the part of your financial adviser, you will also need proof that they have breached their duty of care to you as a client.

Some of the examples below comprise of a non-exhaustive list of what our professional negligence lawyers typically come across when working with clients to establish whether the financial professional they’ve worked with has been negligent. This may help you to identify whether your own financial adviser has been negligent, and in turn help you decide whether you might wish to seek legal advice on your own particular set of circumstances.

Examples of negligence on the part of a financial professional

  • Not advising the client on the risks or suitability of a financial product
  • Failing to assess the client’s bespoke needs and financial situation
  • Making accounting or auditing errors
  • Providing incorrect tax advice
  • Misselling of a financial product
  • Advising the client to engage in a tax avoidance scheme
  • Failing to follow the client’s instructions
  • Acting on behalf of the client when there’s a conflict of interest

What evidence do you need to make a claim against a financial adviser?

As with any type of legal action, gathering together as much evidence as possible in support of your case is advisable. Although the evidence you require will be specific to your case, broadly speaking, there will need to be an assessment of the scope of the legal duties owed by the financial adviser to you, any actions taken by them to comply with those duties (or a failure to act, in some situations), the nature or suitability of any advice given and evidence of what financial loss has been caused by any breaches of these duties.

How do you make a professional negligence claim against a financial adviser?

Whilst the Financial Ombudsman Service (FOS) was set up to address complaints made by consumers against some categories of financial service providers (including financial advisers but not including accountants), specialist legal support is usually required for more complex cases. Below is an explanation of what happens if it’s determined that there is a potential professional negligence claim, and the process will – in the best-case scenario – lead to compensation by way of monetary damages for the loss you have suffered.

1. Complying with the Pre-Action Protocol for Professional Negligence

If you have strong grounds to bring a professional negligence claim against the financial adviser in question after an assessment of the available evidence, you will then have to comply with the steps set out in the Pre-Action Protocol for Professional Negligence (“the Protocol”).

The Protocol outlines the measures that a claimant should take in the course of a professional negligence claim before “issuing” (commencing) court proceedings, with the goal being to achieve an early settlement of the claim without the need to go to court if this can be avoided. The primary steps will be to send a Letter of Claim and await an acknowledgement and subsequent Letter of Response (see points 2 to 4 below). If, however, issuing a claim turns out be necessary despite following the Protocol, then taking these steps should have fulfilled the objective of ensuring that all of the issues between the parties are identified and that all evidence has been exchanged in a suitable manner and in early course.

2. The Letter of Claim

If an early resolution of the claim couldn’t be reached for any reason, the next thing your lawyer will do is draft a Letter of Claim. This letter should provide a summary of key dates and facts, along with setting out the allegations of negligence and an estimation of the financial loss that you’ve suffered. Any important documentation in support of your claim and the calculation of loss should be included with and attached to this letter, but if for any reason details of the financial loss can’t be provided at this stage, then the letter should justify why and also state when this can be remedied.

The other important piece of content the Letter of Claim should include is a request that a copy of it is made available to the financial adviser’s professional indemnity insurers straightaway if applicable.

3. The Letter of Acknowledgment

The Protocol directs that a Letter of Acknowledgment in response to the Letter of Claim should be received from the financial adviser or its legal representatives within 21 days of receipt.

4. The Letter of Response

After they or their representatives have sent a Letter of Acknowledgment, the financial adviser then has three months from the date on this letter to investigate and provide a full response to your Letter of Claim, either by way of a formal Letter of Response or possibly a Letter of Settlement.

It should be clear within the substance of the Letter of Response whether the financial adviser admits the claim or denies it fully or in part – if it’s the latter position then the letter should include a reply to each of your allegations and provide clarification for their version of events. Likewise, if the estimated financial loss in the Letter of Claim is contested, the Letter of Response should include their assessment of loss and again, give reasons if that alternative assessment cannot be provided just yet. (It’s also worth pointing out here that a Letter of Settlement with possible settlement proposals may accompany a Letter of Response, rather than being sent as an alternativeto one.)

If no settlement letter is received or if the Letter of Response flatly denies your claim, you will then be permitted to issue formal court proceedings.

What’s the time limit for making a professional negligence claim against a financial adviser?

The time limit (known in law as a limitation period) for bringing a professional negligence claim against a financial adviser is six years from the date you entered into the financial product or arrangement that has caused you loss.

What if you didn’t know that there was negligence until after the six-year limitation period has expired?

If this is the case, there’s a possibility that you can still bring a claim after the six-year primary limitation period has passed, as long as you do so within three years of when you would be deemed as becoming aware of the negligence – known as the date of knowledge. This is, however, conditional on a long-stop period of 15 years from the date of the negligent act (unless there are allegations of fraud or deliberate concealment), after which any claim will be statute barred: your lawyer will be able to help with working out whether this is applicable to your situation.

Summary

It’s strongly recommended that you take legal advice as soon as possible if you believe that you have a professional negligence claim against a financial adviser, and in doing so you will also receive advice on the different ways the action might be funded. Acting promptly means that you stay within the limitation period for bringing a claim, should this become unavoidable if the steps outlined in the Protocol do not lead to a resolution or an alternative way of settling the dispute outside of the courts.

About our expert

Barik Haider

Barik Haider

Senior Dispute Resolution Solicitor
Barik is a dispute resolution solicitor with over 15 years’ experience in litigation and dispute resolution. Having qualified in 2005, he trained and progressed at large national firms and has also worked at smaller specialist litigation firms. Barik has acted for a variety of clients including large companies, SMEs and individuals and is often involved in complex high value disputes. He is a Recommended Lawyer in the Legal 500.


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