Can claims for losses flow from financial advisor negligence?

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Can claims for losses flow from financial advisor negligence?

Posted by , Associate

In a word, yes. In some cases, the losses caused by changes in the markets and financial crisis are not unforeseeable and therefore the losses flowing from financial advisor negligence will be recoverable.

Last year, the Court of Appeal held that where a professional financial advisor is under a duty to protect their client against a specific risk and fails to do so, the financial advisor will be responsible for all of the losses resulting from that negligence even if the amount of the loss was unforeseeable.

The general rule

It is a general rule in claims for professional negligence that where a party is at fault, they can only be held responsible for the losses suffered to the extent that those losses were “foreseeable” in the circumstances.

However, in the case of Rubenstein v HSBC Bank Plc the court decided that whilst the amount of the losses were beyond the advisor’s control because of the economic crisis, the fact that those losses were possible means that an investment loss caused by adverse market movements were not “unforeseeable” and therefore found in favour of a claim for Financial Advisor Negligence.

What does this mean?

This means that where an investor seeks protection from a specific risk, if the investment suffers a loss for that reason, damages can be recovered, even if the amount of loss is extreme and could not have been anticipated.

Unsurprisingly, the decision has been criticised by the financial services industry and subsequent litigation to test how far this will be stretched is likely to follow.  However, for the time being it offers consumers and commercial investors greater protection in what remains an uncertain economic climate.

If you have suffered investment losses after taking financial advice you could have a claim for professional negligence. If you think you might have a claim then please contact a member of our Professional Negligence Team for advice on 0800 051 8057.

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