Ask any accountant, banker or government official dealing with other people’s money and they will tell you it is serious business. Get something wrong and brace yourself for endless grief, and potentially even legal proceedings. Professional indemnity insurance (PII) is there to protect against claims for losses or damage as a result of negligent services or advice offered.
Ask any accountant, banker or government official dealing with other people’s money and they will tell you it is serious business. Get something wrong and brace yourself for endless grief, and potentially even legal proceedings. Professional indemnity insurance (PII) is there to protect against claims for losses or damage as a result of negligent services or advice offered.
Without coverage, it could be difficult for a consumer to receive compensation after making a claim. PII cover is also meant to be good for the wider financial services industry, as it helps to defend against insolvency of firms and excessive claims on the Financial Services Compensation Scheme (FSCS), which is funded by advisers, through a levy which, on top of increasing PI premiums, has caused resentment among IFAs.
Sceptical consumers may think that this cover reduces the incentive that advisers have to be careful with their recommendations, but no adviser enjoys having claims brought against them no matter how good their policy.
Markets are volatile, and it can be difficult to predict financial outcomes. Human nature prevails and mistakes will inevitably be made, and PII provides a level of protection for consumers against bad advice. Firms are covered when a third party claims to have suffered a loss, most often due to professional negligence. This cover, however, is not cheap.
Better safe than sorry
Savings can be a sensitive topic for many, and a lot of trust is put in advisers to make the right recommendations for their clients. This is especially the case when consumers believe they are paying for a service that will deliver long-term returns. However, claims against an adviser are not limited to paid-for advice, had can equally be made against advice through a commission-based structure.
It is clear that PII does not mean that advisers will or should be any less cautious with their clients’ money. Tony Catt, compliance officer at TC Compliance Services, says, “The aim of normal advisers is to do the right thing for all their clients and to have no complaints. However, since we live in a litigious society and people are constantly encouraged to complain, whether they have a real case or not, complaints are almost inevitable, even for the best, most compliant advisers.”
