The case was brought by the Independent Financial Advisers Association against the Secuties and Investment Board - the City regulator - which issued the guidelines. The SIB won and the advisers were ordered to pay one third of its costs. in addition to meeting its own £300,000 legal bill.
But the association claimed a victory, saying the judgement meant its members need no longer contact their clients if their professional indemnity cover is threatened. This was denied by regulators, who said work on compensating individuals would carry on as before.
However, Andrew Large, the SIB's chairman, said: "We are pleased that this legal challenge failed. Now the Court has confirmed the legality of our guidance, I hope firms will carry on with the job so those who were wrongly advised will secure redress as quickly as possible."
Professional indemnity is crucial for many financial advisers; they would not be able to meet their share of the estimated £3bn pension transfer compensation bill without it.
The SIB yesterday gave an assurance to the court that if advisers risk losing cover for obeying the guidelines they will not have to do so.
Garry Heath, chief executive of the IFA Association which brought the case jointly with the indemnity provider LIBM, said the judgement had put all parties in a "win-win" situation: "The judgement clears the way for the PIA and other regulators to take a more pragmatic approach to the guidance and not be fearful of SIB's hectoring or rhetoric."
Mr Heath denied that the judgement would allow advisers to refuse to contact their clients by sheltering behind the prospect of withdrawal of indemnity cover by their insurers. His association would not back any member which did so.
A PIA spokesman said: "We welcome the terms of the judgement because it means that we can carry on with our part of the review." If the PIA's Pensions Unit contacts clients in place of IFAs their cover will not be affected.
Choosing pensions, page 20