THE mis-selling of financial products is a hot topic causing concern on many fronts, from personal pension plans, home income plans, equity release mortgages, endowment policies or the dreaded payment protection insurance (PPI).
Of particular stand-out are some recent cases involving claims against banks and financial advisers, arising out of their recommendations to invest in seemingly plausible ventures including film partnership schemes. On the face of it, these offered substantial returns and attractive tax breaks.
But in many instances such schemes have been shut down by HMRC after investigations deemed them to be set up for the sole purpose of avoiding tax.
Worse still, HMRC are now pursuing these investors for the amount of tax that would have been payable had a tax avoidance scheme not been used, together with interest and penalty payments. Many individuals have been hit with huge tax bills, sometimes up to five times the amount initially invested in the scheme.
Unfortunately, little can be done in terms of disputing the amounts demanded by HMRC. However, there may be legal cases for investors to bring against financial advisers for mis-selling the investments in these tax-avoiding schemes.
Financial advisers owe their customers a duty of care when instructed to handle their affairs. It would appear that some advisers did not adhere to their duty of care and instead directed clients to whichever scheme paid the highest commission to them for their referrals.
Investors who can prove that these schemes should not have been sold to them will have a cause of action for breach of contract, negligent mis-statement and/or negligence against the advisers and may be able to recover the full amount claimed by HMRC, to include penalties, interest and costs.
In assessing whether a scheme has been mis-sold, various factors come into play, such as whether the firm adhered to the general principles of compliant financial advice. This could include whether the financial adviser carried out a full personal financial appraisal or whether the investment offered suited the needs of the individual.
Other factors may assess if the investment offered was the best on the market and if full risks were communicated to the individual. Finally, a consideration of whether the individual could afford to invest in something so volatile, taking into account present and future plans.
If your adviser did not comply with the above principles it is likely that you may have a claim against them if you have suffered financial loss.
In cases of financial mis-selling, those caught out by the unsuccessful schemes can be left feeling embarrassed and at fault. Despite ever-increasing regulation of financial services, banks and financial advisers continue to mis-sell investments, resulting in many investors losing thousands of pounds in schemes which were never suitable to their needs.
In our experience of handing such cases, it has been evident that the independent financial advisers involved did not explain the risks of these schemes to their clients and, instead, portrayed the schemes as being ‘risk free’ and a wholly legal way to reduce your tax bill.
These types of schemes are high risk speculative investments and are only suitable for a minority of investors, usually those with considerable financial resources and financial expertise.
We would highlight to all potential claimants that strict time limits apply for bringing an action against those who have mis-sold a scheme to them and we would urge anyone who believes that they were mis sold an investment to contact a specialist solicitor.
:: Andrew Morrow is a partner at MTB Solicitors (www.mtb-law.co.uk) in Belfast
