Advisers' PI insurance "worthless" without regulatory controls

As a result, a complete overhaul of PI policies is needed, including the introduction of a 15-year long stop on complaints, according to Ed Anderson, a professional indemnity partner at Beale & Co Solicitors.

The adviser industry had hoped to be granted a 15-year long stop on complaints through the Financial Services Authority’s Retail Distribution Review (RDR).

However, this call was knocked on the head by the regulator when it published its RDR feedback statement in November, saying such a move would seriously disadvantage consumers.

According to Anderson, this stance is very difficult to justify and, in his view, the FSA have missed a fundamental point.

"The insurance policies held by many advisers are often worthless when claims are actually made as they allow enormous scope for insurers to avoid cover and this hits many consumers hard.

"If the FSA wishes to push financial advisers towards the standards adopted by other professions then it is difficult to see why claims against them should not be subject to the same controls, as otherwise it will operate very unfairly against them," he said.

Other professions such as solicitors and accountants have minimum terms and conditions applied to their indemnity policies which restrict the insurers’ ability to avoid paying claims.

Anderson believes that financial advisers should also be able to benefit from this, but said this would only be made possible if the 15-year long stop is granted by the FSA.

He said: "We believe that if a 15-year long stop was introduced then there would be a sufficient number of insurers who would sign up to a set of minimum terms.

"The industry should keep trying to make the case for reform."