Brian McDonell, partner of City law firm Addleshaw Goddard’s financial services regulatory group, was commenting on the debate about the introduction of a long-stop for advisers. He said its introduction would be the “fair and just thing to do”, especially in the wake of the ongoing consolidation of firms and rising professional indemnity costs.
He added: “The current situation is not rational. The industry was tainted by the endowment scandal, but there must be a creative way of providing more assurance for retiring IFAs that would also be fair for consumers.
“It’s also important for directly authorised advisers to understand that they are equally at risk of being targeted by claims when they retire, just as those with networks are.”
Mr McDonell said professional indemnity insurance was a “very expensive process” that could cost former advisers between £10,000 and £15,000 a year in retirement, and could also be a barrier to entry for newcomers.
The plight of former directly authorised advisers and the need for a long-stop was highlighted last month when Philip Griffin, partner of the now-defunct North Yorkshire-based IFA Philip Griffin & Associates, revealed he was being pursued by the Financial Ombudsman Service and a claims management company on a claim from the late 1980s.
Adviser support group Tenet recently launched an e-petition designed to spark debate on the call for a long-stop, and it intends to press for an amendment to the Financial Services Bill once it reaches 10,000 signatures. For more information on the petition, which currently boasts more than 3500 signatures, visit www.epetitions.direct.gov.uk/petitions/52958.
|Key dates in long-stop campaign|
• March 2011: Hector Sants, former chief executive of the FSA, said he would “look again” at a long-stop but the proposals were later dropped from the Financial Services Bill
• 2012: A campaign by the Association of IFAs campaign for fair liability gained industry support but failed to sway regulators.
• 2013: Chris Hannant, director general of the Association of Professional Financial Advisers, renewed calls for a debate on long-stop
• July 2013: Tenet launches e-petition, following government lobbying campaign
Ian Broadbent, director of Lincolnshire-based advisory firm Blue Sky Mortgages, said: “I would argue that the costs of maintaining files and professional indemnity cover are even higher than £15,000 as premiums are rising. Those who set up a limited company and then fold when they retire are not helping the situation either as any claims against them will be forwarded on to the Financial Services Compensation Scheme, which is paid for by the advisory community.”