Are more negligence claims likely?

Posted 25/09/2012

While members of the public can go direct to any financial advisor for help, solicitors are currently required to refer clients who need financial advice to an Independent Financial Advisor (IFA).  This means someone who has absolutely no ties to any of the providers of financial products and will offer impartial advice.  However the Solicitors Regulation Authority (SRA) is considering relaxing the rules and allowing solicitors to refer clients to a wider range of financial advisors.  The Law Society has this week warned that the result might be more negligence claims against solicitors in the future.

Is this likely?  How will the markets respond if the changes become reality?  Will insurers who provide professional indemnity insurance insist that any referrals by solicitors must continue to be to totally independent IFAs? Will they see it as increasing their potential exposure and increase premiums for advice to individual clients?

Rob Adam, who heads the Dispute Resolution team at Ashtons Legal, says: “We have pursued many successful professional negligence claims against IFAs. De-regulation may certainly offer clients the chance to bring claims against solicitors who fail to exercise reasonable skill and care in the choice of IFA they recommend to clients. There will be many interested parties waiting to see the outcome of this proposal.

Our reading of the situation is that there would probably not be a vast increase in the number of claims against solicitors – because most will continue to refer to tried and trusted IFAs who deliver consistently good results – but where there are claims, they could be very significant.”