The scope-of-duty question sits at the heart of the defined-benefit transfer complaints wave. This entry sets out how the Supreme Court's reformulation in Manchester Building Society v Grant Thornton UK LLP [2021] UKSC 20 and its companion case Khan v Meadows [2021] UKSC 21 applies to IFA professional indemnity claims, and why the answer usually differs from the accountant or surveyor analysis that shaped the earlier authorities.
Under section 19 of the Financial Services and Markets Act 2000, an authorised person may only carry on a regulated activity within the terms of their permission. For an FCA-authorised IFA that permission almost invariably includes advising on investments. When an IFA produces a suitability report the retainer is one of advice — not information. That matters for the scope-of-duty analysis inherited from South Australia Asset Management Corp v York Montague Ltd [1997] AC 191 (SAAMCO), which drew the well-known distinction between a professional who advises whether to embark on a course of action (liable for foreseeable losses flowing from the transaction) and one who merely supplies information (liable only for losses attributable to the information being wrong). Because IFAs are regulated to advise, pre-2021 authorities almost always resolved on the advice side of that binary.
The Supreme Court reframed the analysis. Rather than starting with the advice/information binary, the court asks what risks the professional's duty was directed at protecting the client against, and whether the loss claimed falls within that scope. The counterfactual then becomes central: what would the client have done had the defendant given non-negligent advice, and what would their financial position have been on that hypothesis?
For IFAs the reframing does not narrow liability in the way some defendants had hoped. The purpose of COBS 9 suitability — the FCA rulebook chapter that underpins the IFA's duty — is to protect the client against unsuitable investment recommendations. COBS 9.2 requires the adviser to obtain the information necessary to make the recommendation suitable in the first place. When suitability fails, the losses that flow from the unsuitable transaction sit squarely within the risks the duty was directed at.
The British Steel Pension Scheme episode illustrates the point at scale. From 2017 onwards, thousands of steelworkers were advised to transfer out of a defined-benefit scheme with a guaranteed indexed income into a personal pension. The FCA's supervisory work found a substantial proportion of that advice was unsuitable. The redress scheme running through firms, PI insurers, the Financial Ombudsman Service and the Financial Services Compensation Scheme carries a liability running into hundreds of millions of pounds. In each individual claim the counterfactual has the same shape: had the IFA given suitable advice — for most BSPS members, to remain in the DB scheme — the client would have retained their guaranteed pension.
Worked example. An IFA advised a 55-year-old to transfer a British Steel CETV of £180,000 into a SIPP in 2017. A 2024 review finds the advice was unsuitable — the client had no attitude-to-risk profile capable of supporting a transfer and no need for flexibility. The SIPP fund is now worth £110,000 after charges and market movement. Two loss methodologies arise.
On a transaction basis: £180,000 transferred less £110,000 remaining equals a £70,000 crystallised loss. On the counterfactual basis that Manchester Building Society directs: had the IFA advised the client to stay, the client would today hold the right to a DB pension of, say, £8,000 per year from age 65, indexed — with a present value of approximately £145,000 on the FCA's redress assumptions. The counterfactual loss is £145,000 less £110,000 — £35,000. Different methodologies produce different figures. FOS, applying the FCA's DB transfer redress guidance (currently FG17/9 and successor policy statements with the FCA calculator), uses the counterfactual methodology. FOS determinations are final and binding on the firm once accepted by the complainant (DISP 3.6.6R).
FOS is not bound by the common-law scope-of-duty analysis but reaches a similar destination by asking what a suitably advised client would have done. Where the evidence points to the client remaining in the DB scheme absent negligent advice, FOS values the loss against that counterfactual. The overlap between the FOS approach and post-Manchester Building Society reasoning is close enough that PI defences resting on scope of duty alone rarely succeed in DB transfer complaints.
The DB transfer wave has hardened the IFA PI market materially. Aggregate limits, DB transfer exclusions, aggregation clauses tied to advice files and stepped excesses for pension-transfer work are all common on renewals. Firms with historic DB transfer books face restricted terms, and some carriers have withdrawn from the segment entirely. When arranging PI for a professions-focused firm Apex Insurance Brokers considers scheme membership, past-business review outcomes, complaint history and reserving carefully — because the counterfactual analysis above is what will drive the reserve on any live claim.
For the broader framework see the Apex pillar on IFA PI insurance, and the linked wiki entries on advice versus information under SAAMCO and concurrent liability in financial adviser PI. Firms carrying regulatory-defence exposure alongside civil claims may also find the solicitors PI pillar useful for its treatment of overlapping regulator and PI processes.
Apex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority. Firm reference number 724952. This entry is general information, not advice on any particular policy.