Pay-off is better if lawyers at fault: Ian Hunter discovers that legal clients are better compensated for fraud losses than investors

ANYBODY who loses money because their solicitor goes bankrupt or acts fraudulently will find the compensation arrangements far more generous than those covering loss in similar circumstances involving financial advisers.

This disparity will be highlighted over the next few months, as thousands of people seek compensation because they were wrongly sold a personal pension.

The Securities and Investments Board, the chief City regulator, announced last week plans for compensating up to 1.5 million people who may have been wrongly advised to leave or not to join their occupational pension schemes.

The bill will be borne by the companies that supplied the pensions and the independent financial advisers that provided the advice. Some compensation will also be provided by SIB's compensation fund for private investors.

It covers transactions entered into by authorised investment firms that are unable to pay out investors' claims.

The firms covered include all members of the various self-regulating bodies -Lautro, Fimbra, the Personal Investment Authority, the Security and Futures Authority and Imro.

However, investments made with firms prior to 18 December 1986 are not covered. The claims paid by the SIB fund will involve only cases where the investor has lost money through fraud or failure of the investment firm.

SIB's Compensation for Investors booklet points out: 'No one will pay you compensation if your investment falls in value, for example due to a fall in the market, or inflation erodes the real value of the return on your investment.' SIB advises anyone preparing a claim to keep all paperwork relating to investments.

All investors should receive at least a yearly report setting out the state and value of investment. Claims on the fund should be made as soon as possible, and certainly within six months of the firm's default.

There is a pounds 50,000 ceiling. Any successful claimant receives the first pounds 30,000 of the claim in full and 90 per cent of the next pounds 20,000. This limits the maximum that can be recovered to pounds 48,000.

The figure compares favourably with the compensation funds established by banks and building societies to cover situations of default. The banks' ceiling on claims is fixed at pounds 20,000, of which 75 per cent will be honoured. The building societies' ceiling is pounds 20,000, of which 90 per cent will be honoured. By contrast, the insurance companies will provide unlimited compensation in respect of claims resulting from insurance company defaults.

Elizabeth Mayer, a partner and financial services' specialist with the City law firm Fox Williams, said: 'Although the level of compensation provided by the banks and building societies is comparatively modest, the reality is that most banks and building societies, with the unhappy exception of BCCI, have a good reputation and a sound financial basis, making claims in respect of default unlikely.'

Anyone who loses money because of the fraudulent action of their solicitor may be better protected. Solicitors have been in the news a little too much recently.

Figures from KPMG Peat Marwick, the accountants, showed that the value of serious fraud committed by solicitors in the first six months of this year reached pounds 20m.

Two funds have been established to compensate clients who suffer at the hands of dishonest solicitors. The first is the Law Society's Compensation Fund, which came into effect in 1942. This is administered in accordance with the Solicitors Act 1974. Awards made under it are discretionary.

A spokeswoman at the Solicitors Complaints Bureau said: 'The purpose of the fund is to ensure that no client loses out at the hands of a dishonest solicitor. The objective is to protect the public and the image of the legal profession.'

The Compensation Fund is a fund of last resort. Claims will be considered only where the solicitor has insufficient funds to compensate the client or where the loss is not covered by insurance and is not recoverable by any other method. There is no limit on the compensation that this fund can award a client.

According to the SCB spokeswoman: 'The fund handles claims resulting from the dishonesty of sole practitioners or in cases where all the partners have been dishonest.'

Cases of dishonesty where at least one partner is innocent, are handled by the Solicitors Indemnity Fund. The normal route is for the client to sue the firm of solicitors for the loss suffered. The innocent partners can then claim an indemnity of up to pounds 1m from the SIF.

(Photograph omitted)

Life & Style
Sampling wine in Turin
food + drink...and abstaining may be worse than drinking too much, says scientist
Arts & Entertainment
Kingdom Tower
architecture
Sport
Jose Mourinho restrains his assistant manager Rui Faria, Fabio Borini celebrates his winning penalty and Connor Wickham equalises for Sunderland
sportChelsea 1 Sunderland 2: Deafeat is extra bitter as former Chelsea player Fabio Borini scores late penalty to seal victory
Arts & Entertainment
Game of Thrones writer George R.R. Martin has been working on the novels since the mid-Nineties
books
VIDEO
News
Easter a dangerous time for dogs
these are the new ones. Old ones are below them... news
News
Brand said he
people
Sport
Roger Federer celebrates his victory over Novak Djokovic in the Monte Carlo Masters
sport
Voices
Actor Zac Efron
voicesTopless men? It's as bad as Page 3, says Howard Jacobson
Arts & Entertainment
The monster rears its head as it roars into the sky
film
Voices
For the Love of God (2007) The diamond-encrusted skull that divided the art world failed to sell for
its $100m asking price. It was eventually bought by a consortium
which included the artist himself.
voicesYou can shove it, Mr Webb – I'll be having fun until the day I die, says Janet Street-Porter
Extras
indybestFake it with 10 best self-tanners
Arts & Entertainment
Madonna in her music video for 'Like A Virgin'
music... and other misheard song lyrics
News
Much of the colleges’ land is off-limits to locals in Cambridge, with tight security
educationAnd has the Cambridge I knew turned its back on me?
News
peopleOrlando Bloom the pin-up hero is making a fresh start
News
Who makes you happy?
happy listSend your nominations now for the Independent on Sunday Happy List
Have you tried new the Independent Digital Edition iPad app?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

1st Line Helpdesk Engineer Apprentice

£150.00 per week: QA Apprenticeships: This company has been providing on site ...

Telesales & Sales Support Apprentice

£221.25 per week: QA Apprenticeships: This company is a well established Inter...

Client Relationship Manager - SQL, Python

£40000 - £50000 per annum: Harrington Starr: Client Relationship Manager - SQL...

**Financial Services Tax**

£35000 - £50000 per annum: Pro-Recruitment Group: Take your chance to join the...

Day In a Page

How I brokered a peace deal with Robert Mugabe: Roy Agyemang reveals the delicate diplomacy needed to get Zimbabwe’s President to sit down with the BBC

How I brokered a peace deal with Robert Mugabe

Roy Agyemang reveals the delicate diplomacy needed to get Zimbabwe’s President to sit down with the BBC
Video of British Muslims dancing to Pharrell Williams's hit Happy attacked as 'sinful'

British Muslims's Happy video attacked as 'sinful'

The four-minute clip by Honesty Policy has had more than 300,000 hits on YouTube
Church of England-raised Michael Williams describes the unexpected joys in learning about his family's Jewish faith

Michael Williams: Do as I do, not as I pray

Church of England-raised Williams describes the unexpected joys in learning about his family's Jewish faith
A History of the First World War in 100 moments: A visit to the Front Line by the Prime Minister's wife

A History of the First World War in 100 moments

A visit to the Front Line by the Prime Minister's wife
Comedian Jenny Collier: 'Sexism I experienced on stand-up circuit should be extinct'

Jenny Collier: 'Sexism on stand-up circuit should be extinct'

The comedian's appearance at a show on the eve of International Women's Day was cancelled because they had "too many women" on the bill
Cannes Film Festival: Ken Loach and Mike Leigh to fight it out for the Palme d'Or

Cannes Film Festival

Ken Loach and Mike Leigh to fight it out for the Palme d'Or
The concept album makes surprise top ten return with neolithic opus from Jethro Tull's Ian Anderson

The concept album makes surprise top ten return

Neolithic opus from Jethro Tull's Ian Anderson is unexpected success
Lichen is the surprise new ingredient on fine-dining menus, thanks to our love of Scandinavian and Indian cuisines

Lichen is surprise new ingredient on fine-dining menus

Emily Jupp discovers how it can give a unique, smoky flavour to our cooking
10 best baking books

10 best baking books

Planning a spot of baking this bank holiday weekend? From old favourites to new releases, here’s ten cookbooks for you
Jury still out on Manchester City boss Manuel Pellegrini

Jury still out on Pellegrini

Draw with Sunderland raises questions over Manchester City manager's ability to motivate and unify his players
Ben Stokes: 'Punching lockers isn't way forward'

Ben Stokes: 'Punching lockers isn't way forward'

The all-rounder has been hailed as future star after Ashes debut but incident in Caribbean added to doubts about discipline. Jon Culley meets a man looking to control his emotions
Mark Johnston: First £1 million jackpot spurs him on

Mark Johnston: First £1 million jackpot spurs him on

The most prize money ever at an All-Weather race day is up for grabs at Lingfield on Friday, and the record-breaking trainer tells Jon Freeman how times have changed
Ricky Gervais: 'People are waiting for me to fail. If you think it's awful, then just don't watch it'

Ricky Gervais: 'People are waiting for me to fail'

As the second series of his divisive sitcom 'Derek' hits screens, the comedian tells James Rampton why he'll never bow to the critics who habitually circle his work
Mad Men series 7, TV review: The suits are still sharp, but Don Draper has lost his edge

Mad Men returns for a final fling

The suits are still sharp, but Don Draper has lost his edge
Google finds a lift into space will never get off the ground as there is no material strong enough for a cable from Earth into orbit

Google finds a lift into space will never get off the ground

Technology giant’s scientists say there is no material strong enough for a cable from Earth into orbit