Round Up Autumn 2018

15 1. Crestsign Limited v National Westminster Bank plc, The Royal Bank of Scotland plc [2014] EWHC 3043 (Ch), 2014 WL 4636865 2. O’Hare v Coutts and Co [2016] EWHC 2224 (QB) The next stage is to look at the advice and consider its quality. The standard to which the court will hold you is not the ‘gold’ or ‘expert’ standard, but the standard of the ‘reasonably competent’ financial adviser. We don’t make that judgment - it’s the role of the adviser’s peers. An experienced financial adviser will be instructed to look at the file to consider what advice ought to have been given. The judge hears that evidence and decides whether the advice fell below that standard. Ask another trusted adviser to peer review your advice (suitably anonymised), particularly for complex transactions and products. Identify potential conflicts of interest, discuss them with your clients and consider how to deal with them, then note it down and file it safely away! One question we often ask ourselves is ‘why has this happened ? ’. Where there are economic drivers, typically commission, it’s easy to suggest in court these are the motivation for questionable advice. We have, and continue to, act for a number of people advised to invest in film partnerships as a mechanism for mitigating tax liabilities. Commissions were up to 20%. Contingent charging causes a potential conflict which must be discussed with your client. Set out different possible scenarios to illustrate potential upsides and downsides, including the best and worst case. Any risk to which your client might attach significance (even if you don’t) should to be identified and explained. My last tip is to carefully explain what can go wrong. We frequently hear clients say ‘I never knew that could happen’ and ‘I trusted him’. We’ve seen cases where the adviser failed to point out a potentially, very serious, negative financial outcome because it was considered too remote. From the client’s perspective, even a 0.1% chance of that devastating outcome could be enough for them to walk away. As even though the possibility was very small, it was too big a risk. The consequences could be catastrophic. Remember, the risk could be significant to the client, even if not to the adviser. In O’Hare v Coutts & Co the clients argued that they had not been given adequate advice about the risks. When considering whether the bank was liable, the court asked whether it took ‘reasonable care to ensure that their clients were aware of any material risks’. Material risks are those to which you know your client, or a reasonable person in your client’s position, would be likely to attach significance. Ensure your file is fully complete and that each conversation is adequately recorded. Discussions and explanations should be set out in detail. Ensure your terms and conditions of business have been carefully drafted, with the scope of the advice precisely set out. Get another trusted adviser to peer review your advice, if appropriate. Identify and discuss any potential conflicts of interest to ensure transparency. Explain possible scenarios, illustrating the potential upsides and downsides in simple and plain language so that your client can make an informed decision. Philippa Hann Partner, Clarke Willmott CHECKLIST features 2