Mr and Mrs Seymour were farmers. They sold the farm in 2000 for £1.7 million and, after clearing a mortgage and an overdraft, were left with roughly £1.4 million. They turned to Caroline Ockwell, a tax consultant who had also qualified as an independent financial adviser and was a family friend as well as their tax adviser. Her firm was a small practice in which investment work was incidental to tax and accountancy work.
She consulted Zurich IFA Limited, whose consultant replied with a detailed letter. At the end of 2000 the Seymours invested £500,000 in the Imperial Consolidated Alpha + Fixed Income Fund. Doubts about the fund's administration surfaced within weeks. It collapsed in July 2002 and went into administrative receivership. The Seymours lost all of their money.
The case was heard in the Mercantile List at Bristol and decided by HHJ Havelock-Allan QC on 13 May 2005. The claimants sued Miss Ockwell's firm in contract and in tort, alleged that Zurich IFA owed them a similar duty of care in tort and claimed breach of statutory duty under sections 62 and 76 of the Financial Services Act 1986. Miss Ockwell in turn brought a Part 20 claim against Zurich IFA, saying its representatives had been negligent in putting the fund forward for her clients.
The adviser was held negligent and in breach of her retainer in recommending the fund. She had not understood what the Alpha Fund was, and had relied on the provider. That reliance did not discharge her own duty, and the possibility that the investors could have gone elsewhere for specialist advice did not answer her failure to identify the features of the investment that mattered. Reports of the decision record that, as between the defendants, the provider bore a two-thirds share.
The judgment is also cited for treating the regulatory rules as the starting point for the standard of care. Later decisions picked up its formulation, quoted in Shore v Sedgwick Financial Services, that the regulations "afford strong evidence as to what is expected of a competent adviser in most situations".
Seymour closes off the argument that the provider said the product was suitable. A distributor's duty is its own. The Financial Services Authority described the same division of labour in its later work on the responsibilities of providers and distributors: the producer is responsible for operating the product in line with its literature, the seller for its own marketing and, when advising, for whether the product suits the purchaser. An adviser who passes on provider material without forming an independent view carries that exposure.
The case sets up two exposures at once: a full capital claim against a very small firm, and the risk that a claim over against a provider or network is slow, contested and only partly successful. £500,000 was a large sum for a one-person practice, and the outcome depended on a trial. Advisory firms may want to read this alongside the guide to professional indemnity insurance for IFAs and the treatment of the same problem for other regulated intermediaries in the guide for insurance brokers.
An adviser recommending a product outside the firm's usual range may want to record what was done to understand it: the documents read, the questions put to the provider and the answers received. Where the product is unregulated, offshore or unfamiliar, that record does more work, not less. Firms may also want to consider whether their limit of indemnity is set against the sums they place rather than the fees they earn, and whether run-off cover would still respond years later, given the gap here between advice and collapse.
Apex Insurance Brokers arranges professional indemnity cover for advisory firms and can discuss how limits, aggregation and run-off interact with such claims. Related entries cover causation in Rubenstein v HSBC and a firm inheriting another adviser's client in Denning v Greenhalgh.
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.