Professional Indemnity Insurance renewed.

Article by Phil

We are delighted to confirm that we have renewed our Professional Indemnity Insurance (PII) cover for the next 12 months.

It might seem unusual to “celebrate” securing routine PII cover, but in the advice market there are real issues with the availability of cover. Especially for firms like ours who provide advice on Defined Benefit Pension Transfers. As we’ve reported in the past the FCA have been concerned about pension transfer advice in this area ever since issues were raised by British Steel pension transfers 3 to 4 years ago. They have tightened controls and made PII insurers nervous about the risks of covering advice.

Even for Independent Financial Adviser firms like ours with no history of complaints and a 100% customer satisfaction rating, insurers are still nervous. However, our insurers have continued to support us for another 12 months. Although the premium has increased by 50% again, which adds further cost to the advice process.

In addition, as a firm we must hold about 9% of our turnover in liquid reserves (cash in our case) in order to meet the FCA’s Capital Adequacy requirements given our Professional Indemnity Insurance cover.

But that’s not the same for everyone!

Take SJP for example. They have just reported further strong growth in new business (that is investment inflows into their business). Their Assets Under Management now stand at £135 billion and they report that their underlying cash in the business is strong at £190 million. Sounds very good doesn’t it, until you compare that with what the FCA expects of small advice firms like ours.

If SJP (just as an example because they’ve just published figures) held the same amount they would be holding £1.2 billion in cash not £190 million, which in proportion is six times less than we are holding. Don’t forget that SJP don’t have to buy the same levels of PII as other advice firms they are able to “self-insure” effectively saying that they are so big that they could meet any claims from their own funds.

So, we as an advice firm have to spend currently 3% of our turnover on PII cover and hold a further 9% in cash reserves and the “big boys” don’t have those costs. Doesn’t seem fair does it? Oh, and they charge their customers more than we do as well.

This at the same time that the FCA reports that profits in the advice sector have fallen for the first time since reporting began, so it’s a tough time for some.

This is borne out by the latest figures released by the FCA (30/7/21) which showed that the smallest firms with up to £100,000 revenue spend on average 5% of their turnover on PII. This reduces as firms get bigger with those between £500,000 and £1,000,000 (us) spending on average 3.1% whereas those over £10m spend only 1.4%, which is proof from the FCA that the bigger you are the less you pay.

Still, we are happy to be able to say that our clients remain protected with cover for claims of up to £1.85 million, which should cover it!

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