WHEN SOMEONE puts words to a well known song in your head you can’t stop singing them but when it comes to a financial services claim, ‘Let’s start at the very beginning’, is the only place to start.
This may sound perfectly logical but I receive many claim enquiries that only detail the loss scenarios, such as when it all went wrong. Yet, when making a claim against a financial advisor, bank, investment bank, etc., (or ‘firms’, using the FSA term), for any financial services claim it is essential to review all the history, and go right back to the beginning.
Let’s take a typical scenario. A client comes to you stating they believe they were ill advised and have lost a substantial sum of money, say £100k on an investment of £300k. The loss became evident 6 months ago and the firm has declined to compensate the client following a formal written complaint. The client tells you that it happened for various reasons but most importantly because they had been advised to invest in a particular investment fund as it was low risk and had been a top performing fund for the last 10 years. Then it completely bombed and now your client is £100k down. Before this, the investments the client held were successful and the client had made good profits on his investments.
The instructing solicitor asks the financial services expert to prepare a report on this particular fund and why the client should never have been advised to invest in it. He sends the expert all the documents his client has, including the valuation at outset, a recent valuation, copy of the complaint letter and various product documents. What the expert will also need are numerous other papers from the client’s file. These should ‘start at the very beginning’ of the relationship with the firm and may pre-date the investment complaint by many years.
In particular, the expert will need:
Copies of the‘client questionnaires’that have been completed over the years, preferably from the first meeting. There will be at least one and maybe many more. The expert will be looking to see if they are fully completed, dated and signed by your client and the advisor.
‘Letter(s) of recommendation’. These are legally required whenever advice is given, no matter how big or small an investment, and should be dated before the investment advice is given. These letters should state what has been requested of the advisor and the basis on which he/she believes the recommendation is suitable. This covers the term, risk category and general suitability of the investment for the client for his/her personal circumstances. It is important to remember that financial advice should fit the client, not the client fit the product.
Terms of business, file notes, including any internal notes, memos, research undertaken by the firm, second opinions from line managers or compliance, comparative and/or alternative products and why these were not selected and finally what commission or enhanced terms they received for the firm or the client. Basically everything the firm has on the client’s file.
Should you doubt that such disclosure will occur, FSA rules dictate that a client is entitled to see everything on their file including internal notes and comments. The firm is entitled to charge for their time and it may take a month or so, but any longer and they risk punishment from the FSA. Afurther point to note is that all firms must keep records for a minimum of 3 years on any matter. Most advice must be kept for at least 6 years or, in matters of pension transfers, for the remainder of the client’s life.
Between the client, the solicitor and the expert, the claimant is now getting closer to being able to put together a justified claim. This will start with the client’s first questionnaire and the recommendations the advisor made. Afinancial services expert can spend considerable time reviewing the completeness and accuracy of these documents and any recommendations that followed. The information the expert gains from this early period is critical to forming a view as to whether the claim for losses has validity or is a non-runner. This review will be repeated each time advice is sought or given and consider any changes made to the objective, risk and timescale of any of the investment proposals the firm/advisor has made and/or if the client’s financial needs have changed.
Once this process has been completed, a good expert will review all other relevant investments the firm has advised on for your client and make appropriate comment. Causation for your client’s losses may have occurred many years earlier, but due to past positive market conditions did not cause loss or concern to your client at that time. However, these could just as likely have caused losses if market conditions had been different.
A good financial services expert will then assist you with the basis for the claim and the criteria that will have the best chances of success. They will often find aspects not previously considered which give it more weight.
So, ‘having started at the very beginning’ we found it was ‘the very best place to start’ as it gives us the grounds for causation, and the reasons why your client was miss-sold or ill advised. It can then be determined how best to take the claim forward, either via the Financial Ombudsman Service (FOS), which deals with claims up to £100k (but does not allow claims for costs) or the courts.
Your choice may be influenced by the costs. FOS make no charge to the claimant so this route has the benefit of limiting costs to the legal advice and the expert report, whereas the court system undoubtedly means the costs are likely to escalate but should be able to be reclaimed if successful.