This follows last weeks’ High Court decision where a Judge ruled that two investors can pursue their IFA through the courts for damages of more than £500,000 despite having already accepted the maximum award from the Financial Ombudsman Service, contrary to a previous ruling which said such awards were final.
Rebus Investment Solutions, a company which helps investors recoup losses from mis-sold complex investments, believes the High Court is a “natural continuity” from the Fos and that advisers must be prepared to put investors back in the same position as they would have been without being mis-sold products
Richard Rhys, client relationship manager at Rebus and former financial adviser, told FTAdviser he believes this is a “fair” ruling for advisers.
He said: “If they have done the job properly in the first instance this wouldn’t be a problem for them and if on the other hand it has been identified that they did fail in their duty of care then this is the very reason why they have professional indemnity.”
Although Mr Rhys acknowledges there are issues with the professional indemnity market as well as FSA authorisation, he argues that the investors in this case were mis-sold an investment “which caused them a significant loss which they wanted to remedy”.
He said: “In this decision the judge has decided that the original decision in the case of Andrews is faulty and that these clients could go on and litigate for the balance. Other than for an appeal, which we don’t know will happen or not but I suspect it will do, I think this is just natural continuity to the informal dispute resolution that the ombudsman service offers.
“Advisers must be prepared to make good. This really won’t stop now. Up until either this is appealed or until someone else lodges a similar case which I would say is now more than likely in light of this recent decision. I think it could start a number of other claims being filed on another basis.”
Tim Simmonds, head of financial services sector at law firm Osborne Clarke, warned that financial advisers can no longer rely on an accepted determination of the Fos as being binding in cases where the potential loss exceeds the statutory limit of £100,000 plus interest.
He said: “In an unusual, and potentially significant comment, the judge pointed out that although the aims of the Ombudsman Scheme are to provide for the summary and informal resolution of disputes, the scheme would not be undermined if an Ombudsman’s award, even though accepted, did not lead to the end of proceedings. The judge’s view was that the scheme would still bring a swift end to claims of less than £100,000 or where the parties had no desire to pursue the matter in court.
“The decision gives rise to significant risk and uncertainty for financial advisers (and their insurers) who can no longer be sure that a Fos determination, even if accepted by the complainants, will bring an end to matters.”
Furthermore, to reflect the High Court decision, the Fos has updated its technical notes to inform consumers that if they accept a Fos decision, they now can take the case to court. However, it warns that there are time limits for this and these continue to run while a case is with the Fos.
