Contract provisions

Types of contract

Describe the various types of private banking and wealth management contracts and their main features.

Depending on the nature of the services being offered by the private bank or wealth manager, clients are usually asked to enter into discretionary investment management agreements or non-discretionary investment advisory agreements. Under the former, the client typically grants the private bank or wealth manager discretion over the client’s portfolio, allowing the firm to buy and sell specific investments without consulting the client, but in accordance with investment objectives and parameters set out in the agreement. Under the latter, the private bank or wealth manager can make recommendations regarding the client’s portfolio, but can only buy and sell investments on the instructions of the client.

The governing law of these agreements is typically English law, although this is ultimately determined by the parties. Contracts generally provide that they may be varied at the written agreement of all parties to the agreement.

Liability standard

What is the liability standard provided for by law? Can it be varied by contract and what is the customary negotiated liability standard in your jurisdiction?

The liability standard at law is negligence, although gross negligence is becoming recognised by English courts. It is the client’s responsibility to bring a negligence claim against the private bank or wealth manager. The exact terms of the contractual liability provisions are a matter of negotiation between the private bank or wealth manager and their client. The outcome of this negotiation is generally dictated by the relative bargaining powers of the parties involved - ultra-HNWIs and large family offices tend to have greater bargaining power than regular HNWIs. Typically, in the United Kingdom, private banks and wealth managers seek to limit their liability to losses resulting from their negligence, fraud, wilful misconduct or a material breach of contract.

Mandatory legal provisions

Are any mandatory provisions imposed by law or regulation in private banking or wealth management contracts? Are there any mandatory requirements for any disclosure, notice, form or content of any of the private banking contract documentation?

Private banks and wealth managers are required under the regulatory regime to include certain provisions in their contracts. These are generally set out in the FCA Handbook and include provisions relating to client categorisation, disclosures, complaints procedures and safeguarding client assets.

Limitation period

What is the applicable limitation period for claims under a private banking or wealth management contract? Can the limitation period be varied contractually? How can the limitation period be tolled or waived?

The Limitation Act 1980 (LA 1980) provides for different limitation periods in respect of different causes of action. Of particular relevance to private banking and wealth management agreements will be the limitation period for simple contracts and certain actions in tort (six years) and breaches of obligations contained in deeds (12 years). These periods run from the date on which the cause of action accrued. Although LA 1980 does not specifically prevent parties from altering or contracting out of these limitation periods, any attempt to alter the limitation period to a client’s detriment could be subject to the reasonableness test set out in the Unfair Contracts Terms Act 1977.