How to help a client who was wrongly sold a pension
By Paul Higgins, Pension Justice
When carrying out a pension review for a new client, you may be faced with a potential act of pension mis-selling, usually perpetrated by an unauthorized financial adviser, which has resulted in the loss of pension rights for your client. . Naturally, as a responsible professional, you will advise your client of your findings. However, the question is how do you move this case forward on behalf of your client? This does present you with something of a dilemma.
You will no doubt inform your client that he may have a possible claim for compensation which, on occasion, may be large and considerably higher than the amount your client originally invested. However, how should your client go about initiating the compensation process?
You may very well consider helping your client with a claim for a small fee or on a voluntary basis. However, an IFA considering this route should ensure that they have the proper clearances beforehand to avoid facing serious implications. Although advisers have been asked to help regulators file claims free of charge, fending off claims management companies, there is a risk that new regulations that came into effect on April 1, 2019 could mean that an IFA breaches the law even if they assist their client on a pro bono basis if, when their client is compensated, they then continue to provide investment advice to the client for a fee.
You can inform your client that they can make a complaint themselves, either to the Financial Services Compensation Scheme (FSCS) or to the Financial Ombudsman Service (FOS). As you know, these plans are designed to compensate a customer who has suffered financial loss as a result of an act of improper sale. However, your client may feel like they’ve been abandoned just when they need it. While in theory an FSCS or FOS claimant need not be represented, the reality is that many customers are not equipped, for various reasons, to pursue such a claim without assistance. .
An alternative for you would be to refer the matter to a law firm, rather than a claims management company. You will, of course, be aware of the obligation under FCA regulations to give due consideration to the needs of your clients and the first consideration should always be whether the firm to which you are referring your client has the good skills. A law firm is well placed to handle these types of cases. Lawyers, for example, have rigorous educational requirements. They are also able to conduct litigation if necessary and their communications are covered by professional secrecy, which means that these communications cannot be seen by others. Claims management companies have no special requirements, generally have more limited knowledge and experience, cannot conduct litigation and cannot communicate in a privileged way. The level of protection available to your client, should things go wrong, should also be considered. Unlike lawyers, claims management companies are not required to carry professional indemnity insurance. Lawyers who are a limited liability company are required to carry indemnity insurance of up to £3 million per claim.
It is possible for you to conclude an agency contract with a law firm to refer your clients who are victims of abusive sale of pensions. Under current regulations, an IFA, who enters into an agency agreement with a law firm, can refer up to 25 cases in a 3-month period and receive a referral commission. Sponsoring IFAs would not only add value to their relationship with their client, but also provide reassurance that their client was in good hands. Any compensation recovered can then be invested on behalf of the client, thus preserving the relationship. Most lawyers who undertake this type of work offer a contingency fee arrangement (no win, no fee), which means that the IFA client would not be charged unless the case is successful. Any referral fees paid to the IFA by the lawyer could either be refunded to the client or used to improve the services provided by the IFA to the client.
For FSCS claims against previously regulated advisers who were declared in default after 1 April 2019, compensation is capped at £85,000.00 per claim, while FOS claims range between £150,000.00 and £355,000.00 depending on dates of acts or omissions and date of referral to FOS.
Paul Higgins is a Wirral-based solicitor and director of Pension Justice and recovered millions of pounds for clients who were victims of pension mis-selling.