Adviser lawsuit drought not all good news
The number of court cases involving financial advisers being sued by their clients is dropping, according to a prominent lawyer who has warned the development could “backfire” on advisers.
Wednesday, July 11th 2012, 7:05AM 3 Comments
by Niko Kloeten
Brian Henry, who represented financial adviser Carey Church in the Armitage v Church case, says that the number of similar cases was “drying up”, largely because of the cost involved: “Most of these guys aren’t insured and can’t afford to go to court.”
However, he said the bigger trend long-term was the move to private arbitration as a result of regulations requiring financial advisers to sign up to dispute resolution schemes.
This behind-closed-doors process had the potential to become an “abyss” and would shut down the courts from ever seeing that sort of litigation again, Henry said.
“We had a sudden rush [of cases] building up case law which is good; the law had really started to develop for the next little bit but the system that’s been set up has put a stop to that which I think is horrific.”
He said the arbitration process is “great for the industry because they can cover up and hide what they do”; however, “It’s going to backfire horribly on people for the simple reason that you are not getting a body of case law.”
The issue isn’t confined to the financial sector; in a recent speech Chief High Court Judge Justice Helen Winklemann bemoaned the lack of civil cases making it to court.
Case law is also important for the dispute resolution schemes, which use it as a guide when it is relevant to disputes they are investigating.
For instance, Financial Services Complaints Limited (FSCL) chief executive Susan Taylor says there had been a recent case where “we had a good close look at Armitage v Church.”
To address the issue Henry has called for the creation of a specialist securities court, based on the inquisitorial system used in a number of European countries; he said it would side-line the lawyers and dramatically reduce costs while maintaining open justice.
“When things are done behind closed doors there’s a tendency to become a club,” he said.
Niko Kloeten can be contacted at email@example.com
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