Two court judgments issued in the last few weeks have highlighted the importance of testing properly the evidence of investors who bring mis-selling claims against wealth advisers. In both cases the disclosure and trial process identified important evidence undermining the claims.
Both claims were brought by high net worth individuals. The claims were valued at US$30m (Al Sulaiman, brought in the English Commercial court, in which the client invested in leveraged structured notes) and at in excess of HK$93m (San-Hot, brought in the Hong Kong Court, in which the client invested in currency and equity accumulators). Both claimants lost their cases on all counts, and both judgments were strongly critical of them:
- In Al Sulaiman, the judge held that the claimant pursued her case
“with varying and conflicting statements of case [which] illustrate[d] the lack of foundation for her complaints and the irrationality of her attempts to hold others liable for her own risk- taking”.
- In San-Hot, the judge in the Hong Kong court found that the “greedy” claimant’s investments had
“failed because of her imprudent and over-confident utilization of her credit line given her own bullish view about the market. This resulted from her independent judgement and decision.”
Wealth advisers to high net worth clients will be aware that their clients often hold assets across multiple advisers. Those clients are often (and in the ordinary course of business, understandably) private about these arrangements. It is essential for firms to record both the overall wealth of a client, to the extent this is given, and the range of other products invested in, which is relevant to the client’s sophistication, risk appetite and experience, though they will not always be able to get at the complete picture. Nonetheless, evidence as to a client’s wealth and what she has invested in is crucial in any assessment of whether the products were suitable for the client. In the Al Sulaiman case the claimant alleged that the adviser’s record of her wealth was inaccurate and her true wealth was a fraction of the amount recorded by the firm’s client profile form. Once proper disclosure had finally been obtained from the claimant, the documents disclosed formed the basis of the judge’s view that she had been “dishonest” in her allegations.
In a speech given to the CISI on 12 March, Martin Wheatley (CEO designate of the Financial Conduct Authority) highlighted his concerns about assessments of suitability in the wealth management sector. That work is important, and the FSA is right to point out that recordkeeping failures breach the FSA Rules in their own right and are unacceptable.
But the Court in Al Sulaiman reminds us that recordkeeping alone does not prove mis-selling or loss. Where high value, complex investment portfolios are in question, particularly, conclusions as to suitability and detriment ought to be reached through an assessment process which considers all the evidence – which will include relevant information in the client’s possession - and which rigorously assesses the veracity of witness evidence given by the adviser and by the client.