Advocate Damian Molyneux of M&P Legal comments on aspects of the Financial Services Ombudsman Scheme following the recent findings in respect of complaints against Independent Financial Advisers.

As reported in The Isle of Man Examiner on 30 September 2013 the annual report of the Financial Services Ombudsman for 2012-13 identified a number of complaints which it upheld and which were brought to its attention by disgruntled investors in the Louis Group Fund ("the Fund"). It is important to note that the complaints were brought in relation to the advice given to these investors by independent financial advisors, and not in relation to the Fund itself (which is outside the scope of the Ombudsman scheme and subject to separate legal proceedings). It seems that in each case the complainants were investors who were risk averse (that is to say that essentially they would prefer not to risk eroding the capital invested).

The Ombudsman Scheme is one run locally by the Office of Fair Trading. It has the power to determine such cases and order recompense be paid by the advisors in question (not the Scheme itself) up to a maximum of £100,000. This is one of the limitations of what is otherwise a very good scheme. Losses of over £100,000 must be pursued by other means. In addition the Scheme is unable to determine cases involving a loss occasioned by a trust (including Self Invested Personal Pension schemes where the pension pre-dates the advice in question).

Complaints to the Scheme must be brought within 2 years of the act etc. giving rise to the loss coming to the person's attention and within 6 years of the initial advice regarding the investment being given. If a complaint is made either outside the 2 year or 6 year period as described then the Scheme cannot make a determination.

There may be low risk investors holding the Louis Group Fund (and other unregulated, and therefore potentially higher risk inappropriate funds) who are not able to avail themselves of the services of the Ombudsman. In those circumstances it does not mean that action cannot be taken however. Legal proceedings could potentially be considered against a financial advisor which had recommended a fund like the Louis Group Fund if negligence is suspected.

Broadly speaking the same principles as applied to the determination of issues brought to the attention of the Scheme would apply in bringing legal proceedings but there are distinct differences between the OFT Scheme and Court proceedings. There are time limits for bringing such actions however based in part on the date an investor first became aware that a claim might be possible. Court proceedings should not be begun lightly as they can carry onerous cost consequences. The Manx judiciary has rightly made it clear that parties should make every effort to settle prior to starting court proceedings.

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