Liability of financial advisers for pensions mis‐selling

Publication Date01 April 1999
Date01 April 1999
AuthorPhilip Ryley,John Virgo
SubjectAccounting & finance
Financial Regulation
Liability of financial advisers for pensions
Philip Ryley* and John Virgo
Received (in revised form): 14th May, 1999
Wharton, 5
BS1 4JQ; tel: 0117
fax: 0117
Philip Ryley is a solicitor and Head of the
Pensions and Financial Services Unit at
Ringrose Wharton, Bristol. He specialises
in contentious issues within the financial
services and pensions sectors and is
regarded as an authority on the pensions
mis-selling litigation. He is FPC qualified
and an Associate of the Compliance
tute. He manages a team of solicitors who
act for life companies, networks, indepen-
dent financial advisers and investors.
John Virgo was called to Bar in 1983 and
has developed a specialist practice in pro-
fessional negligence litigation. A major
part of this work has centred on financial
services disputes both litigious and reg-
ulatory. He acts both for the industry and
investors, which preserves a sense of
ance when advising on such issues.
Recent reported decisions include Cocking
Prudential at 1996 Occupational Pen-
sion Law Reports 35 and Hale & Hale -v-
Guildarch Ltd & Ors at 1999 Professional
Negligence Law Reports 44.
This paper is based on a talk given by Philip
Ryley and John Virgo to the Association of
Pension Lawyers at their annual
Bournemouth in November 1998. In it the
authors provide an outline of some of the key
legal issues that have arisen out of
mis-selling litigation.
The key issues which arise in relation to the
liability of financial advisers for the mis-
selling of personal pension plans may be
conveniently addressed under the following
six headings:
who is liable
in what circumstances
to whom
and for what
any defences?
Three categories of adviser need to be con-
sidered. These are:
agents of life offices, appointed repre-
sentatives and/or independent financial
appointed representatives of life offices
life offices, through their agents and
appointed representatives.
The sale of such a financial product will in
many cases be effected by an agent of a life
office, appointed representative or indepen-
dent financial adviser. The salesperson will
have described the product to the inves-
tor and in all probability encouraged the
Journal of Financial Regulation
and Compliance, Vol. 7, No. 4,
pp 305-322
© Henry Stewart Publications,
Liability of financial advisers for pensions mis-selling
investor to proceed with the transaction in
question. If the sale has been induced by
negligent misstatements as to the nature
and suitability of the financial product,
docs the agent have any personal liability to
the investor?
Liability in Tort
The existence of a personal liability by
employed professionals for negligence has
long been a matter of academic and legal
debate. The issue was left unresolved by
the Court of Appeal in Ministry of Housing
& Local Government v Sharpe.1 It arose
again in Pacific Associates Inc. v Baxter2
where the Court of Appeal held such a
duty not to arise having regard to the par-
ticular factual matrix of the case. In Wil-
liams v Natural Life Health Foods
House of Lords, after considering a
number of Commonwealth authorities
concluded that for a personal liability to
attach to the individual adviser, it must be
shown that first the adviser assumed a per-
sonal responsibility for the accuracy of any
advice provided; secondly, that whether
any such assumption of personal responsi-
bility had arisen would depend upon an
objective appraisal of the facts of any indi-
vidual case, including whether it would be
reasonable to impose a liability and thirdly
that the (here) investor had relied upon the
adviser undertaking a personal responsibil-
ity so as to be liable for any negligence in
the adviser's own pocket, rather than look-
ing to the company for whom the adviser
In the context of the liability of financial
advisers, the High Court on 9th July, 1998
in Hale v Guildarch
applied the same
principles. The Plaintiff had entered into
the purchase of a Home Income Plan pro-
duct following inadequate and negligent
advice. Neither of the employed sales per-
sonnel was found, however, liable for any
negligence in inadequately or misdescribing
the product and/or its suitability to the
investor. In particular, the Court indicated
'Exaggerated sales talk does not show
that the representative is assuming
personal responsibility and it does not
make him personally liable.'
The sales personnel in that case had been
sued in their personal capacity owing to
the insolvency and uninsured status of the
Liability in Contract
Where the liability is framed in contract
for breach of an implied term to exercise
reasonable care and skill, the sales agent
will not have any personal liability since
'where a person contracts as agent for a
principal, the contract is the contract of the
principal and not that of the agent'.6
Appointed representatives
Appointed representatives conduct business
on their own account, carrying the business
risk of success or failure. They will carry
individual professional indemnity insur-
As such, the Court will be unlikely
to treat such advisers as in the same cate-
gory as employed agents discussed above.
A tort liability for negligent misstatement
will accordingly attach; to the extent that
the appointed representative can be identi-
fied as having contracted to exercise rea-
sonable care and skill in the provision of
advice, including the recommending of a
financial product, a liability in contract will
also arise.
Life offices
Two areas of liability need to be identified:
first, the liability of the life office for negli-
gence of its employed sales force. The life
office will here be liable by reference to
standard principles of vicarious liability.
Secondly, as to the liability of the life office
for its appointed representatives, the basis
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