Three quarters of IFAs do not have PI run-off cover
Close to three quarters of advisers say they do not have professional indemnity insurance run-off cover, with 30 per cent saying they have unable to obtain such provision while 44 per cent more claim run-off cover is too expensive, research has found.
According to the research commissioned by the Association of IFAs and Zurich, more than 70 per cent claim they are are at risk from expensive liability claims because they either cannot afford or cannot obtain professional indemnity cover, thanks to the lack of a long-stop.
The research was carried out by NMG IFA Census as part of Aifa and Zurich’s ‘Fair Liability 4 Advice’ campaign, which is calling for the introduction of a long-stop for the advice profession.
When asked how they currently deal with open-ended liability, 37 per cent of advisers said they “just live with it” and accept they will “take it to the grave”.
Only 39 per cent of advisers use, or plan to use, PI to cover them. The FSA was unable to comment at time of going to press.
The research also found that nearly eight out of 10 – 78 per cent – of advisers agree that less expensive professional indemnity run-off cover is the best option for the profession.
Almost six out of 10 – 58 per cent – felt the best route for them was to convert their business to limited liability status to reduce exposure to future personal liability.
Richard Howells, intermediary sales director for Zurich, said: “It’s wrong that advisers have to accept they will take their liability with them to the grave.
“IFAs are doing an enormous amount of work to make sure they operate better businesses.
“But if that is being eroded because they cannot even calculate their liability then it leaves the market open for predatory buyers to drive down the value of IFA businesses.”
Chris Hannant, policy director for Aifa, pointed to the latest figures from the Financial Ombudsman Service, which show the number of complaints against IFAs has fallen from 3092 to 2643 for the 2011/2012 financial year. IFAs now represent just 1 per cent of all Fos complaints.
Mr Hannant said: “Complaints against advisers continue to fall which shows that advisers have responded to the demands of the retail distribution review.
“But the FSA needs to deliver on its promise of a regulatory dividend for firms. Unlimited liability of advice and rising PI premiums, due to the retrospective actions of the FSA, are damaging the profession.
“It’s clear PI cover is rising in cost despite the positive actions of advisers. The regulator needs to act and deliver a fairer outcome for the advice profession.”
Derek Bradley, founder of online IFA network PanaceaIFA said on 16 July, the Treasury select committee issued comment on the long-stop, which read: “We note the FSA’s acceptance there may be a need to look at whether a long-stop on potential liabilities should be instituted within financial services. We recommend the Committee on the Draft Financial Services Bill, which would create the Financial Conduct Authority, consider whether there is a compelling case for a long-stop. Our view is that any long-stop would need to be shown to be clearly in the interest of consumers.”