An IFA has had a long-stop clause in his client agreements for the last five years and as a result he had to leave a Trading Standards scheme as the now defunct Financial Services Authority refused to approve the agreement.
In an interview with FTAdviser to be published later today (28 June), Phil Castle, managing director of Kent-based Financial Escape, said that he has a clause in his client agreements whereby clients have to adhere to a 15-year long-stop as he believes it is unfair for his firm to be held “infinitely liable” for advice.
The contract says: “The Limitation Act 1980 (as amended by the Latent Damage Act 1986) states that a consumer can bring a claim for damages within six years of the date when the transaction complained of occurred or within three years of the date when they first had the knowledge required for bringing an action for damages up to a maximum of a 15 year long stop.
“The required knowledge is brief, material facts about the negligence and the relevant damage that resulted from it (for example the mis-selling of an investment and the consequential loss or other financial disadvantage).”
Mr Castle said: “Because I put that in my terms of business for the client agreement, I thought I will actually get the belt and braces so I sent to the FSA, as it was then, and the FSA said that it was an unfair contract term. It can’t be because it is common law.”
At the time, Financial Escape were members of the Trading Standards Buy with Confidence Scheme, and they were the first IFA members nationally, however they had to resign following the FSA’s decision.
Mr Castle said: “We are no longer members as the FSA would not accept our right in common law to explain that there were time bars for complaints i.e. six years from the occurrence or three years from when found out with a long-stop of 15 years.
“They would not discuss any alternative wording and said that if we put it in our agreements the mention of the common law rights might be a breach of the unfair contract terms due to the decision of the Financial Ombudsman Service to review cases in excess of 15 years for regulated advice.
“We referred it back to Trading Standards who would not take a stance and insisted on the FSA approving our client agreements which they would not and don’t do for any IFA firm.
“Consequently we resigned and informed the FSA in writing that we would continue to put the statement about time bars and longstops unless they wrote to us confirming any legal advice they had obtained informing us that the terms could not be used. They did not do this and five years later our terms remain unchanged post-RDR as we’d drafted them to be RDR ready at the same time.”
Mr Castle has not yet tried enforcing the long-stop, adding: “The point I made to the FSA at the time was if the longstop does get respected/reinstated later, if it wasn’t part of the contract at the time, it would be very hard to enforce something that wasn’t in the original contract, even if it is common law.
“It’s also aimed to make people think about their responsibilities and because several of my clients are solicitors and accountants, it makes for a good talking point about the longstop lunacy of the FSMA 2000.”
A Fos spokesperson said: “The ombudsman is able to consider complaints that are brought to us up to six years after the event the consumer is complaining about or – if later – three years from when the consumer could reasonably have known they had cause to complain.
“Once a consumer has received a businesses final response, they have six months in which to refer their complaint to the ombudsman.”
The full interview with Mr Castle will be published later today.
