Court of Appeal judges have backed advice network Personal Touch’s decision to terminate an appointed representative’s contract, after the business allowed unauthorised members of staff to carry out fact-finds.
SimplySure, which was an appointed representative of Personal Touch Financial Services between December 2006 and January 2009, was found to be in breach of its agreement with the network.
SimplySure was only authorised by Personal Touch to sell private medical insurance (PMI).
According to court documents seen by FTAdviser, SimplySure used employees who had not been authorised by Personal Touch to conduct an initial fact-find conversation - which was essentially a questionnaire - before referring clients to an authorised adviser.
After visiting SimplySure in January 2009, the compliance director at Personal Touch wrote to the firm stating it had “become apparent” there were a number of compliance processes and procedures “which are not being adhered to within [the] branch, which are fundamental to the adherence of FSA regulation”.
They stated: “All our findings have been assessed on the basis of risk and we have concluded that the risk is too great to allow you to continue as an appointed representative of Personal Touch Financial Services.
“I am therefore writing to inform you that your authorisation is terminated with immediate effect.”
SimplySure subsequently became directly authorised by the Financial Services Authority, the predecessor of the Financial Conduct Authority, in February 2009.
In an earlier High Court ruling, the judge decided employees who interviewed potential clients for the first part of the fact-find were conducting regulated activity, and since the activity was being carried out by an unauthorised member of staff, concluded SimplySure was in breach of the AR agreement.
Despite this, the judge decided Personal Touch had not been entitled to terminate the agreement, and therefore SimplySure was entitled to damages.
The judge also decided the network was liable to pay renewal commission on business introduced by SimplySure, because the advice firm still had a right to receive commission even after their contract had been terminated.
But Personal Touch lodged an appeal against this verdict, pointing to the judge’s acceptance that an unauthorised member of staff had carried out regulated functions.
The network claimed the judge wrongly suggested it had authorised the completion of the first part of the fact-finds by unauthorised employees, and claimed it had been entitled to terminate the agreement.
During a Court of Appeal hearing last month, Sir Stanley Burton QC sided with Personal Touch.
He said the High Court judge correctly found SimplySure to be in breach of the Financial Services and Markets Act 2000, because the company had put an unauthorised person in a position where they could advise the client.
Referring to the questionnaire, which stated the remainder of the fact-find “was to be completed by PMI authorised advisers only”, Sir Stanley said this did not mean the previous part of the fact-find could be completed by someone who had no authorisation at all.
“The earlier part of the fact-find could be completed by an authorised adviser whose authority related, for example, to the sale of life insurance,” he said.
“It also follows that in my judgment Personal Touch is not liable for breach of contract, and SimplySure is not entitled to damages for the premature termination of the agreement.”
Sir Stanley therefore allowed Personal Touch’s appeal and set aside the previous order for SimplySure to be paid damages.
katherine.denham@ft.com
