Liability For Bad Investment Advice
The options open to you when a financial adviser fails
In these unstable market conditions many investors have lost money and sometimes this has been due to negligent financial advice. Patrick Selley describes the options open to you when a financial adviser fails to take reasonable care in their advice.
With two years of unstable market conditions many investors have suffered losses and everybody knows someone who believes that they have been the victim of poor or negligent financial advice which has resulted in a significant financial loss.
The global economic downturn has led to numerous investment funds performing badly and losing value quickly. Often the results of such a loss are causing real suffering to the whole family and may even cause a change in the future education of the children.
Most people will recognise the standard warning that ‘the value of an investment may fall as well as rise’. That is a risk we agree to take, but that decision has to be an informed risk in each case.
However, many investors have been advised to invest in assets where so-called experts simply did not have sufficient understanding that either a particular investment was unusually risky, or that it was too risky for the individual’s needs.
Banks have often been accused of failing to know their customers properly and recommending investment products that have a risk rating that is unsuitably high.
Industry leaders who have commented in the media include Paul Moore, Ex-head of Regulatory Risk, HBOS Plc, who said:
“You simply don’t need to be an economic rocket scientist or mathematical financial risk management specialist……. You just need common sense“.
Currently Barclays Bank is facing much criticism for directing customers to invest in “Morley” Global Income Funds which were described as ‘cautious’ by Barclays but were actually rated as ‘aggressive’ funds within the industry. Morley funds are now known as ‘Aviva’.
Other investments that are currently the subject of concern to investors are:
- Arch Cru
- Shepherds Select Funds
- Integrity Maximiser.
Integrity provided Geared TEPS (Traded Endowment Portfolios), often purchased with a combination of a home mortgage and loans from HBOS or Newcastle Building Society. Both Integrity and some IFAs who sold these plans have been censured by the FSA for failing to understand their clients’ needs.
Not every loss is something for which an adviser can be blamed. It is however something worth looking at, as like any other professionals, financial advisers have a duty to take reasonable care when acting for you.
The Financial Services Authority is charged with, amongst other things, regulating the conduct of those who advise members of the public on investments. It does so by a combination of Principles and Rules. S 150 of the Financial Services & Markets Act 2000 gives the consumer a ‘right of action’ where there has been a breach of the FSA Rules in relation to the conduct of ‘investment business’.
An independent financial adviser or institution, such as a bank, is required to obtain sufficient information to understand fully your financial situation and requirements and to match that knowledge with appropriate investment advice and ensure you understand it.
“I appreciate that the investor was given illustrations and brochures relating to the product. However in addition to providing an explanation of the nature of the investment, the adviser has a responsibility to ensure it was suited to their circumstances and requirements. The fact that explanatory literature was provided is insufficient to demonstrate that the adviser fulfilled his responsibility with regard to the merits and suitability of the investment.”
(Extract from Financial Ombudsman Adjudication)
If a financial adviser or bank fails to follow these steps properly then you the investor may be able to recover losses from the adviser or bank, who should be insured for this purpose. Broadly speaking the loss would be assessed by comparing the position the investor is in as a result of bad advice with the position that would have materialised if appropriate advice had been given and acted upon. In some cases the management fees alone that have been charged over time on complex investments could represent a substantial recovery if the advice given can be shown to have been inappropriate.
If you think that you may have been inappropriately advised in relation to any investment then please contact Patrick.
Patrick Selley. Keystone Law, 48 Chancery Lane, London, WC2A 1JF.
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