How much do professional advisers have to care for their clients?

Jan 2018

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Professional advisers out there will be pleased to know that a number of recent cases have confirmed that they do not have to care too much about their clients.

In one recent High Court case, one firm of financial advisers had (arguably) advised their client (a Mr Denning, sharing his name with one of our most famous ever judges, but himself not a lawyer at all) that he should transfer his defined benefits from his final salary pension scheme to a personal pension plan. He did, and 7 years later it transpired that he would have been better off not having done so as the personal pension fund only earned a 3.2% return when the final salary scheme would have earned 5.74%. Mr Denning went to new advisers, who knew that this had happened and that Mr Denning was moving because he was unhappy. Indeed at one time Mr Denning had even sent them an email saying he would ‘appreciate your thoughts’ about the complaint he was making about his former advisors. Mr Denning signed client agreements (the ‘retainer’) with the new advisors, which set out the services they would provide and said amongst other things that they ‘are not authorised or qualified to give legal advice’. Mr Denning made unsuccessful complaints to the Financial Ombudsman Service about his first financial advisers, and eventually later brought proceedings against them, but by then he was out of time. So he brought a claim of professional negligence against the second advisers, on the basis that any half decent financial adviser should have advised him to look into whether to make a professional negligence claim against the first advisers.

What did the court say?

The High Court judge ruled that only in limited circumstances will a court extend a professional adviser’s duty and liability beyond the scope of the retainer. So Mr Denning lost.

Comments and advice

Obviously it’s difficult for clients in these situations. It’s hard for them to ensure that any issues they need advice about are set out in a retainer, as they don’t know what issues they need advice about in the first place. Clients often go to advisors because they know they don’t know what they need and they are hoping that the advisor will be able to tell them. And yet most professional advisers’ retainers set out at great length all sorts of limits as to what the retainer covers.

A good advisor will know a lot, and will also know what they don’t know, and will always be thinking about how they can look after their clients’ interests by pointing out possible issues and making suggestions, even if they are outside the scope of their retainer. If in doubt they will suggest other professional advisers who can help with things they can’t help with. It’s called ‘added value’. For example, I am by no means a tax specialist and my retainer makes this quite clear, but I have been involved in numerous deals where I have known enough to point out possible issues (and even make suggestions) and to recommend that the client gets specialist tax advice. In this way I hope that I add value, but I would not expect to be liable if I missed something in particular.

If you are a potential client, think carefully about what kind of advice you need. If in any doubt, try to ensure that you go to an advisor who is clearly qualified and competent – perhaps recommended by other professional advisors or contacts whose judgment you trust. The problem often being however that many people might incorrectly think that someone they network with or even who might have done some work for them is better than they actually are – so, ideally, get your recommendations from people you trust who really know what they are talking about! If you want your advisor to reassure you that they will advise you on all the things that you need advice about but don’t know you need advice about, then tell them so quite clearly in writing. And then check carefully what their terms of engagement or other correspondence say they will advise you about.

It always helps to have a preliminary meeting with any potential advisor to help you decide whether they are what you need. Many advisors will offer free introductory meetings, and many such as me will probably give you valuable general advice at such meetings. Think carefully before then going to another professional who has offered a cheaper quote for a particular job! That probably means they haven’t anticipated the scope of work that will be needed to look after your interests properly. They will probably do a shoddy job and they may well look to increase their fees later. You generally pay for what you get.

From a CYA point of view, if you are a professional adviser you should ensure that your terms of engagement make quite clear what kinds of advice you are not authorised or qualified or simply not going to advise on. And also try to be clear what specific work you have been instructed to do. If in doubt, set out any areas where you could help the client if he wanted but where the client has not asked for such help.