A recent High Court decision held that a financial adviser which provided advice to invest in a portfolio, and subsequent advice at periodic reviews, was not under a continuous contractual duty to correct the initial advice, or to carry out new risk assessments at the time of each review.

In 2007 Mr and Mrs Worthing invested GBP 700,000 in a portfolio provided by Lloyds. They then entered into an asset management agreement under which Lloyds was to manage their portfolio of assets. In 2008 they surrendered their investment in the portfolio and received only GBP 657,388.21.

The Worthings claimed that:

  • The losses they suffered on the investment were due to bad advice given to them by Lloyds, initially in 2007 to invest in the portfolio and subsequently in a review meeting in 2008 to retain the investment
  • They ought to have been advised at the outset that the portfolio, as a medium-risk investment, was inappropriate for them as investors wanting only low risk, and that subsequently Lloyds ought to have corrected its initial mistake and advised them to disinvest from the portfolio

Proceedings were commenced in 2013 in which the Worthings sought to recover compensation for their losses. However, at a hearing in 2014 they conceded that their causes of action were statute-barred in so far as they related to alleged breaches of duty that occurred before 2007. They then pursued claims which did not directly relate to the original advice to invest, but to a failure to correct that advice and to subsequent (allegedly negligent) advice to retain the investment.

Dismissing all claims, the High Court found that:

  • The initial investment advice was reasonable but, even if had been wrong, Lloyds was not under a continuing duty to correct it. There was no contract in existence at the time of the initial investment advice that could have imposed a continuing obligation on Lloyds to correct it, nor was any contract subsequently entered into which contained an absolute obligation on Lloyds to do so
  • The asset management agreement did not impose an absolute duty to correct any error in the original investment advice at the time of the review in 2008
  • There was no contractual obligation to carry out a new risk assessment at the time of the review in 2008, in the sense of going over the ground covered by the 2007 risk assessment. Lloyds’ task was to find out whether any circumstances had changed and to give any appropriate advice

The Court reviewed file notes kept by Lloyds when considering the Worthings’ assertion that they were low risk investors. It was found that their approach to life was not one of “putting money safely on deposit”; they intended to use a “higher level of borrowing” in their property investments; and they were comfortable with value changes caused by market fluctuations. The significance which the Court attributed to this information highlights the importance of financial advisers keeping detailed records.

Worthing v Lloyds: [2015] EWHC 2836 (QB)