A recent High Court decision establishes that there is no duty on financial advisers to advise on inadequacies in advice given by previous financial advisers.

The judge considered the extent to which a professional is obliged to advise outside the scope of their retainer, and to what extent that would apply to financial professionals. He concluded that only in limited circumstances will a court extend a professional adviser’s duty and liability beyond the scope of the retainer.

The case highlights the importance of ensuring that all issues on which a client requires advice are clearly set out by the client, whether in the initial contract between the client and adviser or subsequently requested. Essentially, the success or not of a claim in professional negligence may well hinge on the details specified in the retainer letter and any supplements to it.

The case also reminds of the necessity to pursue a claim in professional negligence in good time, before limitation periods expire.

Case background

Mr Denning, brought a claim against his financial advisers alleging that they had breached their duty of care by failing to conclude that advice given by his former financial advisers was defective. He claimed that he had not been advised to pursue a complaint or claim against his former advisers when he thought he should have been. Further, he claimed his financial advisers did not advise him about applicable limitation periods in relation to any potential negligence claim against his former advisers.

Previous advice from first advisers

The complaints arose from advice Mr Denning received on retirement about his final salary pension scheme. Presented with a number of options and advice from his former financial adviser, Mr Denning transferred his deferred benefits from his final salary pension scheme to a personal pension plan.

When considering the transfer of pension benefits, the most important factor was whether the transfer was likely to produce a higher pension at retirement age than the preserved benefits under the occupational pension (the “critical yield”).

The personal pension did not achieve the critical yield of 5.74%. Between 7th August 2000 when the fund was set up and February 2007, an actual return of only 3.2% was achieved.

A second transfer took place in February 2007 so that the personal pension was transferred to a phased retirement plan, again on the basis of advice from Mr Denning’s former financial advisers.

Retainer with second advisers

In August 2008 Mr Denning, dissatisfied with the service provided by his first financial advisers, instructed Greenhalgh Financial Services Limited (GFS) instead, to provide advice on the management of his investments.

Mr Denning did not ask GFS to review the first transfer. Mr Denning signed a “Client Agreement” which set out the terms of the retainer with GFS. A further significant “Fee Agreement” was signed which set out the basis upon which GFS would provide services to Mr Denning. It specified that GFS was not authorised or qualified to give legal advice. It stated, “We are not authorised or qualified to give legal advice or to prepare legal documents for you. Should further work be required outside this fee agreement, a fresh letter will be issued, so no misunderstanding can arise between us.”

It is though worth noting that the new adviser at this stage knew full well that the move to them was because the client was unhappy with his previous advisers and, potentially importantly, that a complaint had already been made to those previous advisers. There was even an email in September 2008 to GFS by which the client said he would “appreciate your thoughts” on that complaint.

Complaint and claims by Mr Denning

Mr Denning made complaints to the Financial Ombudsman Service (FOS) about the two transfers, which were not successful.

Mr Denning pursued a claim against his first advisers, which was eventually abandoned on the grounds that it was out of time. Having exhausted this and the FOS route, Mr Denning then pursued the claim in professional negligence against his second financial advisers, GFS. He alleged negligence on the basis that it should have been obvious to a reasonably competent financial advisor such as GFS that Mr Denning needed to investigate the possibilities of a claim in professional negligence against his former advisers. Properly advised by his new IFA, he said he would have been able to claim against his first advisers before that claim became time barred.


The judge observed that at no point in correspondence was GFS asked by Mr Denning to provide advice as to the merits of the advice given by the previous financial adviser in 2000 which had led to the first transfer. The email request from the client for GFS’s thoughts on the previous advisers’ work was dismissed because it related to ongoing service issues and portfolio monitoring rather than a clear request for specific advice on the transfer in 2000.

The claim was struck out, after full consideration was given by the judge of the extent to which a professional owes a duty of care to their client outside the scope of the retainer.

Points to consider

This decision helps to define the scope of the responsibilities of Independent Financial Advisers. If a client has not directly asked for advice on historic matters, it will not be read into the scope of the retainer that advice on the shortcomings of previous financial advice should be given as a matter of course.

The legal situation may not be entirely satisfactory for clients who do not have the experience or knowledge to ask the right question of their IFA. Mr Denning knew something had gone wrong in 2008 and was complaining to the adviser and also asking for some help from his new adviser. His email in 2008 did not ask the right question though, with the result that the new IFA was unable to react to a question they did not know they were being asked. The law, on the facts of this case at least, does not enable claims to be brought with the benefit of hindsight.