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Professional negligence claims against financial advisers

Article

8 mins read

Updated on 3 July 2024

Our subject expert
Barik Haider

Senior Solicitor - Dispute Resolution

In this guide, our professional negligence solicitors will explain what professional negligence is, how to determine if your financial adviser has been negligent in their duties and how you can make a claim against your financial adviser.

After reading this article, if you’re still unsure about your next steps, our professional negligence solicitors can help. We’ll listen to your situation, explain your options, and support you in deciding whether to move forward with a claim.

What is professional negligence?
How do you know if your financial adviser has been negligent?
Examples of negligence on the part of a financial professional
What evidence do you need to make a claim against a financial adviser?
How do you make a professional negligence claim against a financial adviser?
What’s the time limit for making a professional negligence claim against a financial adviser?
What if you didn’t know that there was negligence until a later date, including after the six-year limitation period had expired?
How long does it typically take to resolve a professional negligence claim against a financial adviser?
What is the role of expert witnesses in professional negligence cases against financial advisers?
How much is my negligence claim worth?
Summary

What is professional negligence?

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 who has been professionally negligent. Common forms of professional negligence claims include claims against financial advisors, solicitors and architects/surveyors.

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

Often a significant loss or concerns around the validity or performance of a product or investment may, be an indicator of negligence on the part of your financial adviser. You will also need to establish that they have breached their duty of care to you as a client.

Below are some examples of what our professional negligence lawyers typically encounter when working with clients to establish whether a financial professional may have been negligent. This may help you to identify whether your financial adviser has potentially been negligent, and in turn, help you decide whether you might wish to seek legal advice from a professional negligence solicitor on your own 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 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?

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 wait for an acknowledgement and Letter of Response. (If issuing a claim turns out to 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.

2. Send a Preliminary Notification letter

While not always necessary, it is encouraged. The purpose and benefit of this is that puts the surveyor on notice of a potential claim. This in turn requires them to notify their professional indemnity insurers. The sooner the insurers are notified the better. Insurers are not ‘on the hook’ for any such claims until notified. A notification letter is usually very short and provides a very brief indication of the nature and value of the claim, with the intention that full details will follow in a Letter of Claim once it has been fully investigated.

3. The Letter of Claim

A letter of claim to the adviser 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 state when this can be remedied.

The Letter of Claim (or any preliminary Notification Letter) should include a request that they notify their professional indemnity insurers.

4. 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.

5. The Letter of Response

After they or their representatives have sent a Letter of Acknowledgment, the financial adviser then has a further three months from the date on this letter to investigate and provide a full response to the Letter of Claim.

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 is the latter position then the letter should include a reply to each of the allegations in the Letter of Claim. The advisor may also put forward a settlement offer.

If they deny the claim or do not put forward a reasonable settlement offer, you may then need to consider issuing 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 a later date, including after the six-year limitation period had 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 considered as becoming aware of the negligence – known as the date of knowledge. This is always arguable and so you will need to take legal advice on this point. This is also 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 applies to your situation.

How long does it typically take to resolve a professional negligence claim against a financial adviser?

It’s impossible to say exactly how long a professional negligence claim will take because it will depend on many factors, all of which will be unique to your dispute and will take into account the complexity of the claim, the financial value of it and the evidence available. If you and the surveyor can settle your claim within the framework of the Pre-Action Protocol period, then you may be looking at around 3-6 months from the date the Letter of Claim is sent out.

If the claim goes to court (because it is disputed or a settlement cannot be agreed) the litigation process may take 12 to 18 months from issuing a claim if a full trial is necessary to resolve the matter. The vast majority of claims settle before they go to trial (primarily because both parties acknowledge the large costs involved in going to trial).

What is the role of expert witnesses in professional negligence cases against financial advisers?

Expert evidence may be required to establish if the conduct was negligent or to calculate what losses have been incurred. If so, expert witnesses often play a vital role in professional negligence claims. They possess independent technical expertise and can assist with a case against a financial adviser in some of the following ways:

Providing an assessment of financial loss: This is a fundamental part of valuing the claim and it helps a judge to determine what level of financial compensation is appropriate if the claim is successful.
Producing expert reports: Expert reports are crucial in establishing professional negligence and the success or failure of a claim can turn upon what findings are detailed in these reports.
Providing the parties with an understanding of technical issues: This can include advising on industry standards and any regulatory requirements and best practices, which go to the heart of establishing whether a financial adviser did breach their professional duty.
Facilitating settlement negotiations: An expert’s findings can often encourage the parties towards exploring settlement – particularly if it comes to light that either the claim or defence is not as strong as was first thought.
Giving oral evidence in court: It’s sometimes necessary for an expert to attend the trial so that they can give evidence on – and be cross-examined on – the contents of their report if the judge decides it’s important in the interests of justice to resolve the case.

How much is my negligence claim worth?

The value of your claim will depend on various elements of the case and each claim will vary. A professional negligence solicitor will be able to help with quantifying your claim, but its overall value will be influenced by how complex the claim is and the seriousness of the loss you’ve suffered as a result of the negligent advice or actions.

Summary

It’s strongly recommended that you take legal advice from a professional negligence solicitor as soon as possible if you believe that you may have a professional negligence claim against a financial adviser. there may be time limits or other issues to consider to avoid your claim being compromised.

About our expert

Barik Haider

Senior Solicitor - Dispute Resolution

Barik is a dispute resolution solicitor with over 20 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.

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