Question of ethics

Q I have received a complaint from a client in respect of an endowment mortgage on which we acted for the client.

What should I do?

A If you used a broker instead of arranging the policy yourselves, then the broker should be responsible for dealing with the complaint provided the permitted third party (PTP) route was properly put in place.

If your firm arranged the policy on a discrete investment business (DIB) basis, then you will be responsible for the advice to take out an endowment mortgage.

However, the terms PTP route and DIB are only relevant to policies arranged after 29 April 1988 (the date upon which the Financial Services Act 1986 came into force).

If the policy was arranged before this date, then the client would need to show negligence.

The good news is that the shortfall may be far lower than the client might have expected.

This is because, if compensation is paid to the client and the mortgage converted to a repayment mortgage, future substantial loss can be avoided.

However, if the policy was arranged on a DIB basis, it will still be necessary to engage a consultant to carry out a calculation of the loss for you, using specialist computer software.

If loss is found, you will then have to arrange compensation for the client, in conjunction with your insurers.

A guidance sheet on this subject is available from professional ethics (tel: 0870 606 2577, DX 19114 Redditch).

This includes a list of the consultants/actuaries who can carry out the loss calculation for you.

Be aware

Updates to the Guide to the Professional Conduct of Solicitors, 1999, eighth edition, our professional rules, and other useful information are set out on the guide Web site in chapter 32 (www.guide-on-line.lawsociety.org.uk).

Telephone hotline

The professional ethics lines are open for general enquiries between 11am and 1pm, and 2pm and 4pm.

The lines are less busy in the afternoon.

It takes emergency calls outside these hours, tel: 0870 606 2577.

Question of ethics is compiled by the Law Society's professional ethics guidance team.

Send questions for publication to Austin O'Malley, the Law Society, Ipsley Court, Berrington Close, Redditch B98 0TD; DX 19114 Redditch