financial adviser negligence

financial adviser* negligence

A Financial Adviser provides advice and investment recommendations to individual and business clients, about a wide range of investment options and products that are designed to fulfil the client’s financial requirements. Depending on the extent of their role, they may also purchase investment products on behalf of their clients, and manage them for so long as the product requires.

*Lees have used this term to describe advisers providing services that are regulated by the Financial Services and Markets Act 2000 (FSMA).

Financial advisers practice in a range of environments; independently, through banks and building societies, as brokers and in some cases, as part of another profession, such as accountants and actuaries.

Just as the financial adviser’s role is extensive, so to are the duties to the client that go with that role. This is to ensure that investors are protected against avoidable financial loss. For this purpose a duty of care is implied into any contract between the financial adviser and the client, and will also arise in the tort of negligence.

In addition, where clients entrust their financial affairs to a financial adviser, they are generally doing so because they lack the expertise that would enable them to do so themselves, and in those circumstances, the law imposes a stringent duty of good faith, trust and confidence (fiduciary duties), the breach of which, may give rise to a separate right of action for damages or an account of profits.  This means that claims against financial advisers will often involve claims in contract, professional negligence and breach of fiduciary duty.

Claims against financial advisers can arise in a number of situations, e.g:

  1. Where the client’s financial circumstances and needs have not been properly considered before a product was purchased.
  2. Where the risk of the investment was not properly explained to the client so they could make an informed choice about committing themselves to the product.
  3. Where the positive features of a product are promoted and the negative features are down-played.
  4. Where the wrong investment product was purchased as a consequence of the financial adviser’s advice.
  5. Where a more suitable investment product could, and should have been recommended to the client.
  6. Where the financial adviser has failed to take steps to ensure that the client has the means to afford the product.
  7. Where the financial adviser has acted for the client where there was a conflict of interests.
  8. Where the financial adviser has made claims about the product that are not true or which were negligently optimistic.

For a professional negligence claim to succeed, the claimant must be able to show that advice was given; that the advice fell below the standard that would be expected of a reasonably competent financial adviser and that the client relied on that advice in making the decision to invest.  In addition, the claimant must be able to show not only that the advice was negligent, but that they have suffered substantial financial loss as a consequence, (sometimes referred to as the ‘but for’ test).

The small print… Investments may go down as well as up.

With the benefit of hindsight in a volatile financial market it is easy for a claimant to say that had they known about this or that risk, that they would never have invested in the product that they did invest in. It is important to appreciate that not all financial loss is the fault of the adviser.  Most forms of investment carry some level of risk; not all will increase in value over their lifetime, and many will lose value before they gain.

The Claimant must prove their case. Each case is unique, but as a minimum, we would have to consider the investment product in light of the information available to the financial adviser and the information you were provided with at the time the investment was made.  In addition to the duties set out above, financial advisers must comply with whatever Regulators Code of Practice was in place at the time the advice or recommendation was given.  The standards under the Code of Practice have evolved over the years, and the current Code is very much more stringent than that which applied a few years ago.

There may be an alternative to Court action…

Before considering court action it’s worth exploring other options first:

Complain to the financial adviser

All regulated financial advisers must have procedures in place to ensure that complaints about their services are considered carefully and that you receive a response within a reasonable time – up to a maximum of eight weeks from the date they receive your complaint.

Complain to the FOS

If you are not satisfied with the response you receive from your financial adviser (or of you do not receive any response at all), then you may have the right to complain to the Financial Ombudsman Service (‘FOS’).

The FOS can only consider financial services complaints brought by individuals or by micro-enterprises (businesses with a turnover of less than 2 million euros per year and with less than 10 full time employees), or by small charities and small trusts.

The FOS has the power to award compensation up to a maximum limit of £150,000 plus costs and interest.  The FOS can also recommend that a financial adviser pays more, but does not have the power to compel them to do so.

We can help

You are unlikely to need help where your complaint is straightforward and your losses are likely to be low (under £10,000). At Lees Solicitors we don’t take cases on that are worth less than £10,000.

However if your complaint involves a high financial loss, a complex financial product, a complex course of dealings or a complex consideration of applicable law, regulations, codes of practice and industry standards, you may need some professional help.

We can assist you to put your complaint into the best format that will enable the financial adviser and/or the FOS to consider it in light of the all of the circumstances and the standards applicable at the relevant time.

What if the loss is higher than this or the FOS cannot consider the complaint?

You can still try and resolve your complaint by making use of the financial adviser’s own complaints procedure, and we can help you with that process.

If this does not resolve your complaint, then we can advise you on your prospects of succeeding in a claim and we will act for you in bringing that claim, in negotiating suitable settlement terms with your financial adviser, or, if this is not possible, in bringing the claim to a trial.

How much?… Funding your claim

Professional negligence claims can be complex, high risk and expensive, so we understand that this may deter you from making a claim. However, where we think your claim is suitable, and at our discretion, we may take your case on under a Conditional Fee Agreement. We may also be able to arrange an insurance (called ‘after the event’ or ‘ATE’) policy that will protect you against any exposure to your opponent’s costs in the event that you lose your case or have to discontinue it.

This means that we will take or share the risk of your case, which will minimise the risk to you.

If you want to discuss your claim, in confidence, please call Lees on 0151 647 9381 and ask to speak to a member of our professional negligence team.

Further information:

  1. Financial Services – Overview

Useful web links:



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