This is, of course, a significant point to bear in mind, particularly by those who may not be as attentive to the tax ramifications of the advice they give as they possibly ought to be.
There is a larger but no less important message here for advisers, however, which I shall consider here. Because I suspect that few financial advisers may be aware of this judgment, particularly if they live outside the UK – even though it may have a bearing on them.
Of those advisers who are familiar with Mehjoo v Harben Barker, meanwhile, I suspect a few may be talking to their personal indemnity (PI) insurers even as I am writing this.
Indeed, if you are a financial adviser, whatever your individual situation, the fundamentals of the Mehjoo case are certain to cause concern – and all the more so if you are in the business of dispensing advice on Qualifying Recognised Overseas Pension Schemes (QROPS).
That’s because, as this ruling shows, just as those who are dispensing advice on QROPS need to be aware of how a court may think, so must those who say they do not consider QROPS as an option for their clients because they don’t like or don’t understand them. One of the core principles of this case is that if in doubt, an adviser should call in a specialist – "don’t like" or "don’t understand" are not, it seems, acceptable alternatives.
‘Common sense and competence’
To me, one of the key points to take away from Mehjoo v Harben Barker is that Justice Silbers apparently saw this case as being about common sense, and being reasonably competent at what you do, rather than a matter of following a prescribed set of procedures (or not following them).
Or, as an accountant might put it, he expressed a preference for a “principles-based” (as opposed to “rules-based”), approach in advice-giving.
This is evident in his observation that “there was no rule of professional conduct or professional guidance which required a referral by the defendants [Harben Barker, the accountants] to a specialist ”, even though, as he goes on to explain, such a referral would have been the right thing for Harben Barker to have done – given that it lacked the specialist knowledge in offshore tax structures that its client, in this instance, would have benefited from.
Accountants, being numbers junkies, will appreciate this fact: in his judgment, which runs to 116 pages when printed, Justice Silbers uses the term “reasonably competent” no less than 62 times.
This is a number which every financial adviser, wherever they live and practice, ought to remember, as it symbolises the importance that a top UK legal authority places on reasonable competence as an element in the giving of financial advice.
Why this case is different
Mehjoo v Harben Barker is not your ordinary unhappy-client-v-adviser case, of course. Rather, it is one that involves a client of a type advisers sometimes refer to as having “complicated, cross-border lives”.
And it was because the gentleman at the centre of the case did not fit the mould of Harben Barker’s other clients that, it seems apparent, they failed to deliver advice specifically tailored to his different-ness.
Was it reasonable to consider that Mr Mehjoo might be different, and be in a position to expect specialist advice from his UK accountant? Crucially for us advisers going forward, Justice Silber evidently thought it was.
At one point in the court documents, we discover that Mr Mehjoo’s legal team pointed out that “Mehjoo” was not exactly an English name.
How many of our clients don’t have English names? How many clients might you have who are actually, or potentially, like Mr Mehjoo – a non-dom?
If you have any such clients, are you aware of tailoring your advice accordingly?
What if your client is married to a national of another country? Is your advice the same as it would be if both were nationals of the UK and domiciled in the UK?
I hasten to suggest it probably is different – and that if it isn’t, it probably ought to be.
Then there’s the client who is tax-resident of another country. Have you considered all of the potential tax consequences of that other country?
These are among the elements that all of us – as we advise clients who, in their own individual ways, live what are commonly referred to in our profession as “complicated, cross-border lives” – must not fail to take into account.
One way is to ensure that the “suitability letter” one’s firm provides to its clients – regardless of where they are based, what their nationality, whatever their rights of abode, domicile, might be, etc – sufficiently addresses these elements, while also signalling to the client that if he or she has failed to disclose key elements of their life, they must do so at once.
Take this example:
“The advice I deliver today is based upon my understanding of your situation, and is based upon my understanding of your personal circumstances and future plans, in that the advice is based on my understanding that you will remain resident and domiciled in the UK for the rest of your days.
“However, should you decide to retire or live or work outside the UK, you must bring this to my immediate attention, and we will recommend that we review the advice immediately.”
To read how the Mehjoo ruling sparked concern among UK accountants after it was handed down by the UK High Court in June, click here.
Geraint Davies is managing director of Montfort International Ltd, a UK-based advisory firm which specialises in providing advice to clients with interests in the UK and Australia and/or New Zealand