Financial advisors play a crucial role in managing clients’ investments, retirement funds, and financial planning. They are expected to provide sound, tailored advice that helps clients achieve their financial goals. When a financial advisor breaches their duty of care, either through errors, omissions, or misconduct, clients may be entitled to pursue a professional negligence claim. Below is an overview of grounds for such claims, the legal process, and how to proceed if you believe you have suffered from a financial advisor’s negligence.
Grounds for a Financial Advisor Negligence Claim
- Breach of Duty: Financial advisors owe their clients a duty to act with competence, care, and professionalism. If an advisor provides advice that is unsuitable for a client’s financial situation, such as recommending high-risk investments without considering the client’s risk tolerance, they may be liable for negligence. This also includes failure to update advice in light of changing market conditions or client circumstances.
- Inadequate Risk Disclosure: Advisors are required to disclose all risks associated with an investment or financial strategy. If an advisor fails to fully explain the potential risks, or if they misrepresent the risk level of a particular investment, clients can claim that they were not properly informed before making decisions.
- Mismanagement of Investments: Financial advisors are tasked with managing clients’ investments in a way that aligns with their objectives, risk profile, and financial goals. Negligence can occur if the advisor mismanages investments, resulting in unnecessary losses. This could involve making speculative or high-risk investments without the client’s consent or failing to adequately diversify a portfolio.
- Failure to Act in Client’s Best Interest: As fiduciaries, financial advisors are legally bound to act in their client’s best interest, rather than their own. If an advisor prioritises their own financial gain by recommending investments that provide them with a higher commission or ‘kickbacks’, this constitutes a breach of fiduciary duty and may lead to a negligence claim.
- Failure to Provide Proper Financial Planning Advice: Financial advisors have a duty to offer comprehensive financial planning advice, considering factors such as taxation, retirement planning, and asset protection. If an advisor fails to address these elements or neglects to provide well-rounded advice, it may result in financial losses or missed opportunities for the client.
The Legal Process for Financial Advisor Negligence Claims
If you believe that your financial advisor has acted negligently, the legal process for pursuing a claim typically involves several key steps:
- Establishing a Breach of Duty: To bring a claim for negligence, you must show that the advisor owed you a duty of care, which they breached. This could be demonstrated by showing that the advisor’s actions fell below the accepted standard of care expected from a professional in their field.
- Proving Financial Loss: You must also demonstrate that the advisor’s negligence caused you financial harm. This could involve showing that you incurred investment losses due to the advisor’s poor recommendations, failure to properly manage your portfolio, or inadequate risk disclosure.
- Gathering Evidence: Collecting evidence is crucial to the success of your claim. Relevant documents might include investment statements, communication records with the advisor, contracts, and any documentation related to the financial advice provided. You may also need an expert opinion from a financial specialist to assess whether the advisor’s conduct deviated from industry standards.
- Negotiation and Settlement: Many financial advisor negligence claims are settled through negotiation. A skilled solicitor can engage with the financial advisor or their insurer to seek a fair settlement that compensates you for the financial loss you have suffered.
- Litigation: If a settlement cannot be reached, you may need to take your claim to court. This is a more complex and expensive route, but a solicitor experienced in financial negligence cases will be able to guide you through the process and present your case effectively in front of a judge.
Time Limits for Financial Advisor Negligence Claims
The limitation period for bringing professional negligence claims against financial advisors in the UK is generally six years from the date of the alleged breach. However, if you did not immediately discover the negligence, the time limit may be extended to three years from the date you became aware (or should have reasonably become aware) of the issue. It is important to take action promptly, as missing the time limit could bar you from bringing a claim.
Defending Against Financial Advisor Negligence Claims
Financial advisors may defend themselves by arguing that they acted within the scope of their professional duties, or that any losses were due to market fluctuations or other external factors beyond their control. Additionally, they may claim that the advice provided was in line with the client’s expressed objectives and risk tolerance.
In some cases, advisors may argue that the client accepted or even requested the advice provided. However, if the advisor failed to act in the best interest of the client or did not disclose essential risks, these defences are likely to be insufficient.
Why Seek Legal Advice?
Financial advisor negligence claims can be complicated, requiring knowledge of both financial industry standards and legal procedures. Seeking advice from a solicitor with experience in professional negligence is essential to ensuring that your claim is properly handled. At Jeremy Gordon, we specialise in providing legal services to clients who have suffered from poor financial advice. Our team will work with you to assess the validity of your claim, gather the necessary evidence, and represent you in seeking compensation for your losses.
If you believe you have suffered as a result of negligent financial advice, don’t hesitate to contact us for a consultation.
