Long-stop long overdue

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A few years back, completely out of the blue, I received a phone call at the office from a worried IFA I had met a few years previously. He had retired to Spain and he was in trouble.

It was nothing to do with the local police or a problem with a failed expat business – he had long put any business activities behind him. Weighing him down was the burden of a compensation case brought by an ex-client disgruntled by the recent return on a long-term investment plan he had been sold by the adviser many years before when he was working in the UK.

The adviser was beside himself with worry and was looking for some help and suggestions on what he could do to fight his corner. He told me he had retired to Spain with his wife and was enjoying an idyllic life in the sun when one day he received a phone call from his previous company about the complaint followed by an avalanche of paperwork asking him to explain his actions.

His case was a good illustration of the pain the current lack of a long-stop, or time-bar, on financial complaints can cause retired advisers. In his case, he told me he had diligently looked after his clients’ best interests, going out of his way to give cautious but considered advice and had tried very hard to do his best at all times, partly to avoid any future complaints about reckless advice. His reward was a potentially ruined retirement.

I must confess to having had mixed feelings about the long-stop before talking to him, but my views changed as I heard more of his story. I was reminded of the conversation by a story in Financial Adviser recently which showed that the long-stop remains a live issue and a deep concern for many financial advisers.

The case Financial Adviser covered was a High Court decision to throw out a claim against a large consultancy because too much time had passed. In the case of Seton House Group and Britax Pensions Trust against Mercer Ltd, Judge David Cooke ruled that the Limitations Act of 1980 applied, meaning that the case could not go ahead.

Separately, trade body Apfa, along with Tenet and Zurich, have been running a well-publicised campaign recently for the introduction of a long-stop. The FCA and other bodies are looking at the issue and there is finally a realisation something needs to be done.

While the recent Seton-Britax case is useful, some experts believe that legal judgements do not necessarily restrict the Fos from pursuing cases if it chooses to do so. So the case does not mean that the long-stop issue is over.

So where to now? From a client’s point of view I can see that it is clearly not reasonable or fair that an adviser can escape his responsibilities entirely by leaving a company or retiring or whatever method he chooses to exit the industry.

From the advisers’ point of view, it is clearly wrong that they could be chased in their seventies or eighties for complaints made decades earlier. Few other professions would tolerate that and my sympathy for advisers, particularly retired ones, is growing, especially when I see ‘ambulance chaser’ firms actively seeking complaints from clients over investments that have allegedly ‘underperformed’. A new breed of ‘adviser chasers’ seems to be emerging.

Ultimately there will need to be agreement over a long-stop protocol that is fair to both sides. Here I am interested in the legal time-bars that apply to criminal and civil cases. These ‘long-stops’ vary depending on the severity of the crime. In the case of the most serious crimes, such as murder or sexual abuse, there is no limit.

For less serious crimes, particularly in civil cases, there are time limits. For example in summary offences committed under health and safety laws the time limit can be as little as six months.

A time-limit protocol like this could apply in the case of poor financial advice to reflect the fact that there is a huge difference between someone being miffed with a 5 per cent return on their investment when they expected 7 per cent and someone who has been cheated out of their entire pension savings. The two require different treatments.

There will need to be agreement over a long-stop protocol that is fair to both sides

There may also be a case to say that where an adviser has retired, responsibility for future complaints could rest entirely with the company and not the individual adviser.

Certainly these days it seems more common for IFA firms, even small ones, to be taken over rather than wound up so it is not unreasonable that a new owner who will benefit from a business and the client bank should also take on the responsibility for legacy complaints.

Kevin O’Donnell is a financial writer and journalist

You said:

Steven Farrall in response to the application of High Court time-bar to advisers 11 March

We really must get over this idea that Fos in any way at all represents the rule of law. It does not. It is configured precisely to disregard it. That is the whole problem. It is just a bunch of bureaucrats who decide on a whim what they would like the law to be.