Your IndustryDec 24 2020

Your Shout: Letters to the editor

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Who pays the cost of poor and illegal advice?

I feel obliged to respond to your report on the Financial Services Compensation Scheme levy, ‘Bitter pill to swallow: advisers react to FSCS interim levy’ (Nov 25).

I cannot believe that we are, yet again, being burdened with the cost of poor or even illegal advice.

I only have to look out of my office window and I can see a regulated company promoting offshore property investments that for all intents and purposes look legitimate, or UK-based property schemes where they are actively advertising the low interest rates that clients can get to remortgage and invest. 

But sadly the regulator comes after the easy touch – those of us who strive to work within the regulatory boundaries as set out for us.  

The company I worked for previously took £27m of pension assets and invested them into unregulated collective investment schemes investments. All are now valued at £0.  

Yet the individual responsible continues to trade (albeit not as a regulated individual).

He is now a business development manager (not that the clients that he sees know that he isn’t supposed to give advice).  

Sadly they continue to flout the regulations and cause havoc, but who pays for it?  That’s right, us – those trying to guide clients through the world of investment. 

‘But there is a whistle-blowing facility that you could call,’ I hear you say. This is true but it is not fit for purpose.  

We blew the whistle on my previous employer six years ago and guess what has happened? That’s right – nothing. We had a call this year to say that [the regulator] was continuing its investigations.

And all the while more and more people are being misled and conned out of their cash. And I’m expected to put my hand in my pocket and pay for it.

Name and address supplied

 

Valuing unquoted stocks

Regarding your article ‘Schroders British trust raises third of target ahead of IPO’ (Nov 27).

It says the Schroders trust will invest 50 per cent in public equity investments, with the other 50 per cent going into unquoted stocks, while aiming to provide a net asset value return of 10 per cent a year. 

Who is going to do the valuation to help meet the 10 per cent a year target? How easy is it to value unquoted stocks?

This says a lot about the growing shortage of listed securities and the increased reliance on non-transparent private equity.

Mark St Giles

Cadogan Financial Ltd

 

A call for clarity

Regarding your article ‘Former footballers launch mis-selling case against adviser’ (Nov 27). 

I think there is a lack of clarity within the sector as to the legal tests by which their conduct falls to be assessed and it is unclear whether the solicitors are saying that it’s a fraud case or a breach of Financial Conduct Authority rules.  

There are plenty of lawyers who bring claims against advisers without really knowing the fundamentals, and the view of the Financial Ombudsman Service on an issue can be very different to the position that the court takes. 

Given the increase in claims against advisers it is still worth remembering that there is a significant difference in terms of the approach of the court compared with the Fos. 

It is usually much harder to persuade a court that a claim is valid – and more cases are lost than won. 

The court does not determine cases based on what is ‘fair and reasonable’, and each case is dealt with on its facts. There are no hidden biases or preconceived notions of blame.   

In court, to establish legal liability on a mis-selling claim, the usual routes are claims for breach of statutory duty, breach of contract and negligence.  

To win a case for breach of statutory duty the claimant has to show breach of a specific FCA rule (for example Cobs 9.2): so simply pointing to an FCA principle of business or some guidance and saying the adviser didn’t comply is not enough. 

If you cannot show breach of a specific rule it will be difficult to show that the advice was nonetheless a breach of contract, or that it was negligent (that the advice given was advice that no reasonable adviser could give).  

But negligence can potentially extend the time period within which a claim must be brought – usually six years – which is often why it is claimed.  

In the article it appears the claims also involve allegations of dishonesty.  

That is more eye-catching than simply saying an adviser got it wrong, but it is usually an indication that there is a limitation issue to be overcome and that the claims date back a number of years.  

Fraud will also extend the time period for issuing proceedings so it runs from when the fraud was or could reasonably have been discovered. 

But fraud is notoriously difficult to prove. If the allegation in the case is that not only the adviser but all the other companies listed also acted dishonestly then that is going to be a very high hurdle to get over, and, on the face of it, is inherently improbable. 

It will take some very compelling evidence to persuade a court that this is in fact the case. 

And if a claimant can prove liability it still has to establish that the breach in fact in legal terms caused the loss that is claimed. Again that is often much more difficult to show than it might at first appear.

Jonathon Crook

Shoosmiths