Professional indemnity insurance was a hot topic this week, as more evidence emerged that the market is ‘hardening’. For the uninitiated, that is a euphemism for getting much more expensive and offering less protection.
The Association of Professional Advisers revealed that 31 per cent of 271 advisers surveyed by NMG Consulting 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.
But it is not just about rising costs, it is about increasing exclusions - and according to some not just for single products.
We all know that certain product exclusions have featured in PI insurers’ terms for a while now, such as Keydata, Arch Cru and others that have become scandalised.
However, according to compliance expert Phil Billingham insurers are now reserving the right to exclude whole genres of products. He 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.
With an annuity market that undoubtedly will contract, more and more advisers will put their clients into drawdown and that is a worry if PI insurers no longer cover drawdown.
According to Mr Billingham and other observers, the hardening PI market could force a number of advisers to become restricted, meaning they simply will not advice on areas they do not have PI cover for.
On the other hand, network 2Plan blamed the PI increase on a lack of compliance support as well as “a lack of thoroughness” within elements of the financial advice industry.
The firm’s boss Chris Smallwood said premiums are rising because individual directly authorised advisers are not managing to keep abreast of compliance - and he said the claims of independence needing to be forfeited was a restricted adviser-propogated fantasy if the right support is offered.
Maybe he is right, but by all accounts the difficulties and costs faced by advisers are very much a reality, as is, unfortunately, the compensation culture driving these trends.
There is a strong case for regulators or government to look into the market, because it feels ever more like the sector could do with a helping hand at a time of unprecedented pressure.
Connaught déjà vu
Speaking of scandals, the Connaught muck hit the proverbial fan this week, with an All Party Parliamentary Group holding its first a debate in Westminster.
Connaught’s Income Fund Series 1 was suspended to new inflows and investment redemptions in March 2012, after the investment manager discovered that assets used to secure loans in the fund may no longer provide sufficient collateral.
The debate raised some interesting questions, not least of the regulator which came under fire for “sprawling and confusing nature of regulation” and a “lack of transparency”.
Capita Financial Managers the ACD of Connaught until 2009 (who was also ACD of Arch Cru) was also criticised for its part, while backbencher David Davies questioned why the parent company could not be made liable for claims.
The Connaught debate also revealed that the police are looking into the collapse of the funds and specifically into allegations of misappropriation of funds.
Whilst I am pleased that politicians etc are getting more involved, what good did the continuous meetings between those involved with Arch Cru and regulators actually achieve? Investors have still lost money, and continue to - and advisers will not avoid claims.
Recently published decisions on the Financial Ombudsman Service’s online database revealed that every one of eight complaints regarding Connaught have been upheld in favour of the client.
Half the decisions mentioned the alleged fraud, stating that is why their clients have made losses but the Fos threw out this ‘excuse’, blaming the advice itself and that unregulated collective investment schemes are not suitable for retail clients.
Protection is for advice, not guidance
Today the TSC published its report into the Budget. Guidance promised to pension savers must be offered at least a year ahead of their proposed retirement date and must not include final product recommendations, the report said.
In other words, the guidance is exactly that... ‘guidance’, and not advice. So why does the TSC recommend that consumers will need to know what protection the guidance gives them in the event of detriment?
There is no protection, and why should there be if ‘guidance’ is stuck to? It is high time that ‘caveat emptor’ made a reappearance. If you chose your product, following guidance and it failed why should someone else take the rap for your decision?
Surely this lack of protection needs to be emphasised as maybe then people would see the value of getting advice from a regulated financial adviser. Not only are you in the hands of a professional but, if the worst happens, you will have a degree of protection.
This is what the guidance given must emphasise.
Housing bubble, toil and trouble
Lastly, another mention for the apparent housing bubble and lack of government action thereof.
Halifax data revealed that annual house prices in the three months to April shot up 8.5 per cent. Although this is less than the 10.9 per cent quoted by Nationwide last week, this is still very depressing news for prospective buyers like myself.
Three former exchequer chancellors said this week that chancellor George Osborne is exacebating the problem due his Help to Buy programme.
People like me can benefit from Help to Buy programme and the 95 per cent LTV mortgage expansion it has facilitated, but with property prices rising rapidly driven by a lack of supply, potential home buyers are therefore caught between a rock and a hard place.
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