Increasing professional indemnity insurance premiums are due to a lack of compliance support as well as “a lack of thoroughness” within elements of the financial advice industry, 2plan’s boss has claimed.
Chris Smallwood feels that the rise of PI premiums, largely as a result of mis-selling cases such as Arch Cru, unregulated collective investment schemes and pension transfers, are being made worse by individual directly authorised advisers not managing to keep abreast of compliance, thereby misjudging products or else falling foul of mis-selling schemes.
These mistakes are ultimately leading to increased numbers of claims against advisers by clients, Mr Smallwood said.
He also claimed that restricted advice firms have suggested that soaring PI premiums will cause IFAs to give up their independent status and go over to restricted.
Mr Smallwood argued the reality is that three quarters of IFAs are determined to remain independent and “it is not difficult to be an IFA” if the right compliance and administrative support is in place.
Earlier this week, advisers and market insiders warned a growing number of restrictions being placed on PI insurance policies often including whole ‘genres’ of business could force many advisers to forfeit their independent status.
Chartered financial adviser Phil Billingham, founder of adviser support services consultancy the Phil Billingham Partnership, said that he has seen the PI market ‘hardening’ in terms of both higher premiums and excesses.
He added that he is seeing policies that include a broader range of restrictions than previously and even wholesale exclusions covering entire business areas.
In particular, Mr Billingham cited anecdotal evidence from peers suggesting PI insurers are now looking at in more detail at drawdown and are increasingly refusing to cover firms with a large legacy of pension transfer business.
Research published by the Association of Professional Financial Advisers revealed 31 per cent of 271 advisers have seen their premium increase, by around 14 per cent on average.
Around 44 per cent of advisers have received the same premium as last year, and only 8 per cent have been offered a reduced premium, the data showed.
Mr Smallwood said: “As for the claim that advisers are relinquishing independent status, I’m afraid it’s only the big restricted advice networks that are claiming this to be the case – the statistics most certainly suggest otherwise and that independent is the preferred route for the vast majority of advisers.”
A recent survey commissioned by Harrison Spence Partnership revealed that 62 per cent of IFAs have continued on a business as usual basis post-RDR, while 16 per cent have found alternate ways of serving lower-value clients, and a further 22 per cent said they had turned lower value clients away.
