A high court has found an appointed representative liable for a misselling claim after the principal firm’s authorisation ceased and has ordered the ex-adviser to pay more than £500,000 in damages and costs.
In a case heard in Manchester Civil Justice Centre last week, judge Mr Justice Hodge found Endowment Surrender Plus sole proprietor Mark Wayman missold life settlement policies to two clients, both professional trustees.
ESP was an appointed representative of Becque Wayman Investments Limited when Wayman gave the advice in 2003.
BWIL ceased to be regulated in April 2009 and the clients lodged the complaint in November 2009.
Wayman argued the advice contract was between BWIL as the principal firm and the clients.
But the clients argued that Wayman did not make it clear that BWIL was the principal firm. They said the letter of engagement, terms of business, restricted customer information sheet and additional correspondence showed the contract was with ESP.
Hodge found that while BWIL elected to monitor and supervise ESP and was liable for acts and omissions of ESP, the contracting parties were ESP and the clients.
The judge has ordered Wayman to pay £426,000 in compensation, plus interest of 1 per cent above base rate on that amount since November 2003 and court costs of £100,000.
Wayman, who gave up his adviser authorisation in 2009, says his professional indemnity insurance was through BWIL and the firm was unable to secure run-off cover when it ceased to be authorised. He does not have PI cover in place and says he and his wife will be forced into bankruptcy.
Wayman says: “We are checking with a specialist QC on whether this is worth appealing. We think it will be.
“This judgment has huge implications for the advice industry. All ARs should be very worried about this as they could be unprotected against claims for the rest of their lives.”
Fishburns partner Harriet Quiney says all ARs should take note of their PI cover.
She says: “While FSMA makes principal firms liable for ARs, appointed reps are still liable to their customers because they are the ones that give the advice.
“If a principal or network is no longer there for whatever reason, the AR is liable. I do not think many ARs are aware of that and they need to be wary of their situation with regards to PI cover when a principal firm or network restructures, goes bust, closes or the adviser moves to a new network.”
Foot Anstey partner Alan Hughes says: “Although I have not seen a case like this before, it is clear in all ARs’ terms of business that I have seen that it is the AR who is forming a contract with the client to give advice.
“The key question on any appeal will be whether the regulatory framework somehow extinguishes the direct relationship between the AR and the client and it is difficult to see why that would be the case.”