Adviser network Personal Touch Financial Services has won a Court of Appeal case over its termination of an agreement with its former appointed representative (AR) SimplySure. Private medical insurance advice firm SimplySure was an appointed representative of Personal Touch between December 2006 and January 2009, before the network ended their agreement citing concerns over the firm’s fact-finding practices.
SimplySure used unqualified staff, who had not been authorised by the network, to carry out initial fact finding. After Personal Touch discovered this, it wrote to the firm in January 2009, saying that “we have concluded that the risk is too great to allow you to continue as an appointed representative of Personal Touch Financial Services.”
The firm became directly authorised after leaving the network, but according to the Financial Services Register is no longer authorised.
In an earlier judgement, the High Court ruled that SimplySure was in breach of its agreement with Personal Touch, but also ruled that the network was not entitled to dismiss the firm over this issue. The Court ruled that Personal Touch should pay damages to SimplySure, and also ordered the principal firm to pay renewal commission on business introduced by SimplySure.
Now the Court of Appeal has decided that Personal Touch was entitled to take the ultimate sanction.
The case highlights two important issues, firstly that fact finding is part of the advice process, and hence should be carried out by the person who will give the final recommendation; and secondly that ARs must follow the rules set by their principal firm at all times.
Ways in which the principal firm can dictate to their ARs include:
• Deciding if the ARs should offer independent or restricted advice
• Setting out compliance procedures and processes to be followed, e.g. those relating to selling practices, data protection, anti-money laundering, complaints
• Supplying the compliance documentation the ARs use, such as fact-finds, disclosure documents and suitability report templates. If they are allowed to use documents of their own design, they will need to be approved by the principal before use. Any promotional material the AR issues, including the content of a firm website, is also likely to need the principal’s approval.
• Carrying out comprehensive file reviews, and expecting ARs to carry out the required corrective action following these reviews
After all, the principal firm bears the ultimate responsibility in the eyes of the Financial Conduct Authority if the AR falls short of the required standards. An AR could be subject to the disciplinary regime of their principal, even though the relationship is not one of employer and employee. If the principal has serious issues about an AR’s conduct, it may ask them to account for their actions, and maybe to attend a formal disciplinary hearing. As we have seen in this case, the principal is entitled to terminate its agreement with an AR, and in these circumstances the AR firm will need to either find another network or secure direct authorisation in order to continue trading.
The information shown in this article was correct at the time of publication. Articles are not routinely reviewed and as such are not updated. Please be aware the facts, circumstances or legal position may change after publication of the article.