Advisers fear professional indemnity (PI) cover costs could jump yet higher after a landmark ruling allowing investors who accepted the maximum award from the Financial Ombudsman Service (FOS) to pursue their IFA for more money.
High Court judge Ross Cranston has ruled that investors Barry and Julie Clark are free to claim further damages from In Focus Asset Management & Tax Solutions, despite the adviser firm having paid £100,000 compensation following a FOS judgment. That payout was the maximum the FOS was able to award at the time, although the limit on FOS claims has since risen to £150,000. The pair have alleged they incurred losses of £500,000 after being mis-sold endowment policy plans following the sale of their business and premises.
Alan Smith (pictured), chief executive of London-based Capital Asset Management, said the judgment set a ‘very dangerous precedent’. He argued that complainants who may have shied away from the courts would now find it easier to launch claims if they were first to go to the FOS, leading to greater PI costs for advisers. ‘The risks [of IFA businesses] will be exponentially greater to insurers,’ he said.
Lee Robertson, chief executive of London-based Investment Quorum, agreed the ruling left advisers in a vulnerable position. ‘It adds to the burden of what is becoming an almost impossible job,’ he said.
Tim Simmonds, head of financial services at law firm Osborne Clarke, added the judgment had ‘grave ramifications’ for the FOS, given the uncertainty over future legal action from investors who receive an Ombudsman award. ‘This uncertainty raises major policy questions about the role of the Ombudsman and its ability to provide swift and binding decisions,’ he said.