The duties of wealth managers are constantly changing, and in today's regulatory environment, they are complex. This article looks at the issues that arise and how the industry ensures compliance and trust.

The following article examines the changing duties that fall on the shoulders of wealth management, and that inevitably raises risks to managers and advisors when matters go sideways. To discuss such topics is Samuel Peters, paralegal at Cooke, Young & Keidan. The editors of this news service are pleased to share these comments; the usual editorial disclaimers apply. Remember, these articles are meant to start conversations, so please jump in if you wish to do so. Email tom.burroughes@wealthbriefing.com and amanda.cheesley@clearviewpublishing.com

Do the courts take a softer approach to accidental negligence? 

With the UK’s post-Brexit financial services framework currently at a crossroads, it is as important as ever that wealth managers remain vigilant about their shifting duties. The FCA and PRA’s secondary objective of “facilitating the international competitiveness of the UK economy” has seen initiatives both to equate some UK regulations with EU ones and distinguish others. The FCA have highlighted the ways they hope to apply their mandate to the UK asset management regime (1). 

Wealth managers, like all providers of financial services, must perform their duties with reasonable care and skill, as codified in Section 13 of the Supply of Goods and Services Act 1982, and confirmed in an asset management context in Worthing v Lloyds Bank Plc (2).  It has been held that staying informed of the latest developments in the field is an inherent part of this standard (3). But with a regulatory regime so complex, how do you make sure you are doing this effectively? 

The FCA plans to answer this, at least in part, by ensuring that firms’ regulatory requirements are proportionate to their size, with improvements to the Alternative Investment Fund Managers Directive (AIFMD) regime being a particular going concern (4). While this should hopefully alleviate some of the issues currently faced by smaller businesses, it is important not to lose sight of the fact that the standard the courts will apply in assessing whether managers have discharged their duties will still be that of reasonable competence. 

This has already been stated clearly in the context of independent financial advice in Edward Arthur Seymour, Pauline Mary Seymour v Caroline Ockwell & Co (a firm), Zurich IFA Limited (5). There the court reiterated that the possibility that the claimant could have obtained more specialist advice did not detract from the advisor’s own personal failure to identify salient investment concerns. These did not require specialist knowledge and were within her expertise.

Therefore, when it comes to identifying the latest legal developments in this field, professionals are universally expected to be diligent. It will not be a defence for a manager to assert that their negligence in not complying with a particular regulation was accidental, if their level of expertise or the size of their resources indicates that they should be expected to have engaged with regulatory developments more rigorously.

What the courts may be more sensitive to are situations where more than one reasonable course of action is open to a wealth manager. In Arch Financial Products LLP, Robin Farrell, Robert Stephan Addison v The Financial Conduct Authority (6) the court allowed investment managers broad leeway on the question of where they had maintained acceptable fund liquidity levels, because there was no consensus in the profession about what level was reasonable. However, where the scope of a regulatory requirement is unequivocal, the courts are unlikely to be so lenient.

Managers should ensure that they have clearly defined systems for ensuring compliance, that are justified in relation to the size of the fund, trust or assets they are administering. Regulators and organisations such as The Investment Association frequently publish guidance on how they can do so effectively. While the process of ensuring compliance may sometimes be time-consuming, the benefits of a robust, internationally respected industry speak for themselves. 

Footnotes
1, The Financial Conduct Authority, Updating and improving the UK regime for asset management: our priorities (12 October 2023)  

2, [2015] EWHC 2836 (QB) at [80], His Honour Judge Keyser Q.C. 

3, Bolam v Friern Hospital Management Committee [1957] 1 W.L.R. 582, 586, McNair J; Eckersley & Ors v Binnie & Partners & Ors [1988] 18 Con LR 1 at [79], Lord Justice Bingham. Bolam was confirmed to apply to wider professional contexts outside medicine in Gold v Haringey Health Authority [1988] QB 481, 489, Lloyd LJ. 

4, See fn.1, also; The Financial Conduct Authority, Portfolio letter: Asset Management & Alternatives - Supervisory Strategy (26 February 2025)

5, [2005] EWHC 1137 (QB) at [93], His Honour Judge Havelock-Allan Q.C.

6,  [2015] UKUT 0013 (TCC) at [448], Judge Timothy Herrington.