Taking over another financial services representative’s clientele carries risks.
A financial services representative, who operated his own company, acquired another mutual fund agent’s book of business. That person retired and subsequently died.
Five years later, one of the new agent’s clients asked to make a withdrawal from her investments, as she had done several times in the past with her former agent. She was in desperate need of money and decided to proceed even though she was told that the transaction involved transfer fees. When she later learned that the transfer fees totalled $9,000, she decided to sue her current agent and his firm, claiming that they had failed to adequately inform her of the consequences of her decisions.
The client refused any attempt to compromise and settle out of court. She even turned down an offer of $5,000. The current agent, who acted reasonably and professionally, insisted on his full defence on the grounds that he could not be held liable for the original agent’s erroneous information.
The client took the matter to court and was awarded the amount claimed, plus interest and costs. The reasoning was that even if the client insisted on getting the money quickly, it was up to the current agent to warn her of the potential consequences, including the cumulative effect of the withdrawals made by the original agent. In other words, the current agent should have protected the client from herself.
The full defence of the case resulted in legal expenses of $17,800 for the professional liability insurer, plus compensation of $15,555.