Worthing & Anor v Lloyds Bank Plc

An investment adviser is not in breach merely because a client later describes a medium-risk investment as too risky. Suitability depends on the properly conducted assessment of the client’s capacity and appetite for risk, considered as a whole.

An ongoing investment-management relationship does not ordinarily impose a strict, moment-by-moment duty to correct allegedly negligent initial advice. The adviser must instead conduct contractual reviews with reasonable care and skill and comply with applicable conduct rules. A fresh risk assessment need not repeat the original exercise where relevant circumstances and objectives have not materially changed.

The claimants invested £700,000 in the defendant bank’s managed investment portfolio in January 2007. The portfolio had a Balanced profile, described as medium risk. After its value fell, and while the claimants had a substantial overdraft connected with an intended property sale, the bank reviewed their position in March 2008 and advised against immediate liquidation. The portfolio was sold in July 2008.

The claimants alleged negligence, breach of contract and breach of statutory duty. They contended that the original advice should have resulted in a Cautious, low-risk portfolio, that the bank had a continuing obligation to correct that advice, and that the March 2008 review should have led to disinvestment. The central issues were whether the original investment was suitable, whether any continuing corrective duty existed, and whether the March review complied with the applicable contractual and COBS obligations.

1. Claim dismissed. The Balanced Portfolio was suitable when selected. The claimants understood that it was a medium-risk investment and chose that profile after the defendant had undertaken a structured assessment of their capacity and appetite for risk.

2. The assessment had to consider the claimants’ responses as a whole. Individual inconsistent answers, or the earlier expression of a wish for relatively low risk, were not determinative. The defendant was entitled to use standardised documentation, and the documentation adequately explained the distinction between Balanced and Cautious profiles. More concrete questions based on hypothetical percentage losses were not required.

3. The Asset Management Service contract did not impose a strict continuing obligation to correct any alleged error in the original investment advice. The original advice was not given under the pleaded contract, and an initially negligent act would not become a fresh breach at every later moment merely because it had not been corrected. The continuing contractual obligations concerned management of the Portfolio and periodic reviews.

4. Under clause 3(iii) of the Terms and Conditions, read with clause 1(a), section 13 of the Supply of Goods and Services Act 1982 and the applicable COBS Rules, the defendant had to review changed circumstances and objectives with reasonable care and skill. COBS 9.2.1 R applied to advice about selling a designated investment, but did not require the original suitability exercise to be repeated de novo.

5. Advice against immediate sale was a limited personal recommendation. The claimants’ financial position remained uncertain because the commercial properties had not been sold and the overdraft arrangements were under review. Under COBS 9.2.6 R, a recommendation to sell could not properly be made without sufficient information to assess the future investment objective. A reasonable adviser could adopt a wait-and-see approach. The defendant therefore complied with its relevant obligations.