By Paul Higgins, Pension Justice
When carrying out a pension review for a new client, you may encounter a possible act of pension mis-selling, perpetrated usually by an unauthorised financial adviser, which has led to your client suffering loss of pension entitlement. Naturally, as a responsible professional, you will advise your client as to your findings. However, the question is how to progress this matter on behalf of your client? Â This does present you with something of a quandary.
You will no doubt advise your client that they may have a possible claim for compensation which, on occasions, can be significant and considerably in excess of the amount that your client had originally invested. However, how should your client go about starting the compensation process?
You may well consider assisting you client with a claim for either a very modest fee or on a voluntary basis. However, an IFA who considers this route must make sure that they have the correct permissions beforehand to avoid facing serious implications. Although advisers have been urged to help bring claims to the Regulatory Bodies for free, to push back against Claims Management Companies, there is a risk that new Regulations which came into effect on 1 April 2019 could mean that an IFA is breaking the law even if they assist their client on a pro bono basis if, when their client is awarded compensation, they then go on to provide investment advice to the client for a fee.
You could advise your client that they could make a claim themselves, either to the Financial Services Compensation Scheme (FSCS) or to the Financial Ombudsman Service (FOS). As you will be aware, these Schemes are designed to pay compensation to a client who has suffered financial loss as a result of an act of mis-selling. However, your client may feel that they are being abandoned in their hour of need. Whilst, in theory, an applicant for compensation to either the FSCS or FOS does not need representation, the reality is that many clients are not equipped, for a variety of reasons, to pursue such a claim without assistance.
One alternative for you would be to refer the case to a firm of Solicitors, rather than a Claims Management Company. You will, of course, be aware of the requirement under FCA Regulations to pay due regard to your clients’ needs and the first consideration should always be whether any company to which you refer your client has the right skills. A firm of Solicitors is well placed to handle these types of cases. Solicitors, for example, have rigorous training requirements. They are also able to conduct litigation if necessary and their communications are covered by legal professional privilege, meaning that such communications can’t be seen by others. Claims Management Companies have no particular requirements, would usually have narrower knowledge and experience, cannot conduct litigation and cannot communicate in a privileged manner. The level of protection available for your client, if things go wrong, should also be considered. Unlike Solicitors, Claims Management Companies are not obliged to carry professional indemnity insurance. Solicitors who are a limited company are required to indemnity insurance of up to £3 million per claim.
It is possible for you to enter into an Agency Agreement with a firm of Solicitors to refer your clients who are the victims of pension mis-selling. Under current Regulations an IFA, who enters into an Agency Agreement with a firm of Solicitors, can refer up to 25 cases in any 3 month period and be paid a referral fee. Referring IFAs would not only be adding value to their relationship with their client but could also take comfort from the fact that their client was in good hands. Any compensation recovered could then be invested on behalf of the client, thus preserving the relationship. Most Solicitors undertaking this type of work offer a Contingency Fee Agreement (No Win, No Fee) meaning that the IFA’s client would not be charged unless the case was successful. Any referral fee paid to the IFA by the Solicitor could either be rebated to the client or utilised to enhance the services provided by the IFA to the client.
For claims to the FSCS against previously regulated advisers who have been declared to be in default post 1 April 2019 compensation is capped at £85,000.00 per claim whereas claims to FOS vary between £150,000.00 and £355,000.00 depending upon the dates of the acts or omissions and the date of referral to FOS.
Paul Higgins is a Wirral based Solicitor and Director of Pension Justice and has recovered millions of pounds for clients who have been the victims of pension mis-selling.
