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Home > Regulation > UK Regulation

Fos buy-back move prompts PI insurance fears

PI insurance may not cover advisers if forced to buy back investments by the Ombudsman, advisers warn.

By Nick Reeve | Published Jul 30, 2012 | comments

Advisers have warned of the unknown effect on professional indemnity (PI) insurance if the Financial Ombudsman Service (Fos) repeats a recent decision to make an adviser buy back funds from a client.

Investment Adviser last week revealed that the Fos had issued a preliminary ruling instructing RSM Tenon Financial Management to buy back two unregulated funds from a client, after the client discovered it would take three years to get her money back from one of the products.

RSM Tenon is contesting the ruling and defended its advice.

The Fos said its rulings are made on an individual basis, and so no decision would set a precedent. However, Alan Lakey, partner at Highclere Financial Services, expressed concern that such rulings, if repeated, would not be covered by PI insurance.

He said: “I would bet this kind of case wouldn’t be covered by PI insurance as there is no loss at the point of claim. The PI insurer would likely have some wording to get out of paying.

“The Fos is thinking creatively, and that is dangerous.”

Dennis Hall, managing director of Yellowtail Financial Planning, said the Ombudsman had no other option in this case, but warned another such ruling “could put a smaller firm out of business”.

Mr Hall added: “Quite how PI insurers take this is another matter.

“I think it’s new ground for PI insurers – when would you calculate the value [of the liability]? What happens if the investment position becomes worse? The PI claim could be hanging over them for years, and the renewal is not going to be pleasant.”

Derek Bradley, chief executive of PanaceaIFA, said he would be “surprised” if any PI insurer would agree to cover such an event, meaning the adviser would be “carrying the can to a greater degree”.

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