Article by Phil
Good news this week, we managed to renew our Professional Indemnity Insurance (PII) for the next 12 months. You might think that it would be a straightforward matter to arrange insurance, but unfortunately in the financial advice market PII cover is getting harder and harder to acquire. The number of underwriters prepared to provide cover to the market continues to reduce. Why? There are a number of reasons. One of the issues faced by insurers and advisers of course, is that cover is open ended. There is no statute of limitation on a claim for negligent advice as there is for a legal claim for example, which is limited to three years. We see evidence of this time and again with the Financial Ombudsman Service (FoS) finding against advisers for advice given over twenty years ago.
Another reason is the increasing cost of claims. Last year the Financial Services Compensation Scheme increased the compensation limit to £350,000 from £150,000.
In our market, insurers are also extremely wary of claims relating to defined benefit pension transfers. This is on the back of ongoing claims of bad advice around the British Steel Pension Scheme mainly in South Wales. We are authorised as Pension Transfer Specialists to provide advice on pension transfers and we adhere to the Personal Finance Society’s Gold Standard on pension transfers. Nevertheless, we have to jump through hoops to provide insurers with every detail about the advice we have provided. It also helps that we do not accept referrals from any third-party Introducer companies, not do we ever deal with clients who are “insistent” about what they want to do. We only provide holistic advice based on each client’s individual circumstances. That stands us in good stead. As does the fact that we’ve never had a complaint about the advice we’ve provided!
So, whilst we’ve been hearing reports about premium increase of well over 100%, our PII was renewed with a comparatively moderate 21% increase in premium!
Sadly, as in previous years, these ever-increasing costs of regulation are ultimately passed on to clients by way of higher charges. It’s just a fact of life at the moment.
We have to have PII cover in place by law in order to continue to provide advice, in order to protect our clients. Currently the insurance provides cover for up to £1,850,000 per claim, so clients are well and truly protected. That’s on top of the protection and cover provided by the Financial Services Compensation Scheme, in case we aren’t around to pay any claims. In addition, advice firms are required to carry a minimum of £20,000 in what’s known as Capital Adequacy, to further ensure that there are funds available to protect clients. Don’t forget of course – we don’t actually hold any client money – all money is transferred directly to the Investment Provider chosen; the money never passes through our bank account. Currently we are holding over £30,000 in specific cash reserves, outside our normal business accounts to cover Capital Adequacy. I can’t think of many if any other businesses who are required to hold funds just in case a complaint arises that might result in a claim for compensation – so in dealing with a financial advisor you are as well protected as it’s possible to be.
Let’s hope for a more “stable” 12 months with no further lockdowns and business interruptions so that we can all start to get back to feeling normal again.
