Advisers have largely supported a High Court decision to allow a couple to pursue their IFA firm for extra compensation, even though it had already paid them £100,000 following a Financial Ombudsman Service (FOS) decision.
They say the ruling in favour of Barry and Julie Clark against Focus Asset Management is a fair one if their losses are, as the couple claimed, far in excess of what they received via the FOS award and due to negligent advice.
The High Court ruling conflicts with a previous judgement made in 2010 which ruled that investors who had successfully claimed at FOS could not sue their adviser.
Now that there are two conflicting rulings, the issue will have to be decided at some point by the Court of Appeal, and its decision will be binding on itself and all lower courts.
The FOS has clarified, however, that once it has ruled in favour of a consumer and ordered that a firm pay redress, that award would not be repayable even if the consumer lost in a later court action.
The Ombudsman service has also said it will change its wording in its rulings to alert consumers to the fact that they can pursue a firm through the courts after "final settlement" with the FOS.
Some advisers have been critical of this latest legal decision in favour of further court action against a firm after FOS, but many have said the ruling is fair if the advice was faulty.
Phil Billingham, operations director at Perceptive Planning, said: "While this development will be unwelcome, it does seem fair that where the FOS has only been able to mandate limited redress, clients may take further civil action to recover losses due to poor advice."
Others agree, though with caveats. Dan Woodruff, managing director, Woodruff Financial Planning supported the claimants' right to seek compensation for negligent loss, but said the case could lead to higher costs for advisers, which would be passed onto clients.
"This is why we have taken the view as a firm that we must charge clients a percentage of the assets we manage since larger portfolios mean greater risks to our business."
The issue of higher costs is linked to the belief that this ruling will mean higher professional indemnity insurance (PII) charges for advisers.
However, consumers have always been able to pursue advisers through the courts rather than FOS if they so choose so this is not necessarily the PII bombshell it at first appears.
Dennis Hall, managing director at Yellowtail Financial Planning, does not expect there to be any impact.
"I shouldn't think there would be a problem with PII as the complainant has always had the option of going direct to the courts rather than using the Ombudsman - in fact for large cases it was seen as preferable though this ruling may now make it appropriate for all complaints to go to the Ombudsman first, regardless of size.
"PI insurers may then prefer to reach an out of court settlement and thus defray court costs if the Ombudsman's decision was against the adviser."
Billingham added another key point: that the burden of proof is different in an ordinary court, and the client takes far more risk as to costs, so this may not, in fact, be the open house that it first appears.
As Richard Bishop, managing director of Premier Practice, noted, the Clark's case is "one a 100 million case. I don't know many IFAs whose advice would result in a loss over £100,000 and deemed the IFAs fault".
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