Client ‘experience and expertise’: is it an effective defence against mismanagement allegations and damages claims?

In response to complaints about investment mismanagement and excessive losses, an easy and common defence for compliance departments is to allege that “the client was an experienced investor” and/or “knew what he was doing”. However, this defence should be used with extreme caution says Dr Brian Bloch. In the concluding part of his article (part one featured in the November 2003 issue) he examines the need to distinguish between experience and expertise and to ensure their relevance on a case-by-case basis.

© Dr Brian Bloch 2003. Dr Brian Bloch is a managerial and financial journalist and consultant. He can be contacted on tel: +49 (251) 83 29921 email: brian.bloch@marketing-centrum.de

In general, even relatively experienced investors are entitled to explanations that are comprehensive, comprehensible and comprehended. Vague warnings about short-term market swings, do not prepare investors for massive capital destruction. Signing up for medium risk is quite meaningless for most investors, unless the concept is explained fully in terms of potential losses, suitability for a particular individual in particular circumstances and so on.