Shore v Sedgwick Financial Services Ltd & Ors

A financial adviser must give clear, suitable advice about the available pension options, compare their benefits and risks, and explain the investment growth required to match an occupational pension. A transfer value analysis is important, but where retirement is imminent, the comparison may be made in another clear and effective way. If the client’s circumstances or priorities materially change, the adviser must revisit the advice. The adviser must specifically warn about the risks of taking income at or near the maximum permitted level and, where appropriate, put an annuity option squarely before the client. Exposure to a contingent risk does not itself constitute actionable damage. Damage occurs when the risk materialises and the claimant is actually worse off.

The claimant transferred accrued benefits from an occupational pension scheme into a personal pension fund withdrawal arrangement advised by the first defendant. He alleged negligence and breach of statutory duty under section 62 of the Financial Services Act 1986. He claimed that the adviser should have advised him to retain his occupational pension benefits or, after his circumstances changed, to purchase an annuity.

The court found failures to compare the schemes adequately, to explain the risks of maximum withdrawals, and to revisit the advice when consultancy income ceased and the claimant required a substantial income. The central issues were breach, causation, contributory negligence, statutory liability and limitation.

1. Duty and regulatory standards. The common-law duty required advice meeting the standard of a reasonably competent financial adviser. The SIB principles and IMRO rules were strong evidence of that standard. The adviser had to explain the occupational and personal pension options, compare benefits and risks, identify the growth needed to match the occupational scheme, and prepare a fair and clear personal financial report. The court noted that a transfer value analysis was less crucial where intended retirement was less than twelve months away, but the comparison still had to be made clearly.
2. Primary claim. On the facts communicated to the adviser, there was no duty to advise the claimant to remain in the occupational scheme and defer taking benefits until age 60. He intended to retire at about age 57, wanted access to the tax-free lump sum, and anticipated consultancy income. The failure to provide the required comparison and warnings nevertheless constituted breaches of duty and of IMRO rules.
3. Changed circumstances and annuity. By May and June 1997 the claimant had lost the prospect of consultancy income, required substantial income, and intended to take the maximum permitted pension. The adviser therefore had to reassess the advice, compare an annuity with the withdrawal plan, explain the advantages and risks, and disclose the firm’s 75 per cent guidance. The adviser failed to do so. The claimant would probably have purchased an annuity if properly advised. His conduct did not amount to contributory negligence.
4. Damage and limitation. Entering the withdrawal plan exposed the claimant to contingent risks but caused no immediate actionable damage. Damage arose when falling annuity rates depressed the value of the fund and the claimant was actually worse off, by the beginning of 1999. By December 1999, or at latest May 2000, he knew in broad terms of the damage, its possible attribution to the advice, and the relevant omissions. The limitation defence therefore succeeded under the Limitation Act 1980.
5. Disposition. Although the claimant established breaches of statutory duty causing loss, the claims were statute-barred. The action was dismissed.