Sue directors, not advisers: Lawyer

Hundreds of investors are seeking legal reparation for financial losses incurred as a result of investments based on advice given by financial advisers. However Brian Henry, barrister and Chairman of funds management firm Goldman Henry Capital Management says investors would more likely receive compensation if they targeted Directors instead of the financial advisers who are not currently covered by their insurers. Directors have their own indemnity insurance which is better placed to compensate investors if courts determine that the directors have been negligent.

Henry says the trend in legal circles to sue investment advisers is of significant concern and is likely to yield little satisfaction for investors. One of the issues driving this dissatisfaction is the extent of insurance coverage financial advisers have with their indemnifiers.

Most financial advisers took out Professional Indemnity (PI) insurance with the view that it would cover the loss caused by cases of negligence. However, in many cases, the losses suffered by investors was as a result of loss caused by another person's negligence, or the Directors of the finance companies.

"PI insurance covers losses as a result of the adviser making a mistake. This could be for example putting the money in Bridgecorp instead of placing the money in the bank as the investor had instructed. The insurance industry has $3 billion reasons not to agree to cover this financial adviser and investors are highly unlikely to get compensated as a result."