Regulation  

Apfa mulls PI insurance as long-stop alternative

Apfa mulls PI insurance as long-stop alternative

Apfa has raised the possibility of a centralised insurance fund as an alternative to the long-stop, should the FCA not agree to a limit on the liability on financial advice.

Chris Hannant, director general of the Apfa, said that while most advisers wanted the introduction of a 15-year long-stop, the industry was open to other options, which could feed into discussions with the FCA.

One of these options was a centrally controlled and funded professional indemnity insurance policy. He said: “We know full well that for members, the preferable thing is a 15-year long-stop coming in. But we need to look at other solutions.

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“We have been toying with some other ideas around socialising the risks and costs (of liability).”

Mr Hannant said the insurance policy would probably need to be compulsory across the advice market, adding that the idea would be examined by experts to see if it could work.

Martin Bamford, managing director of Surrey-based Informed Choice, said the policy, if properly designed and implemented, could serve as a replacement for FSCS levies.

He said: “What we would like to see is a fair distribution of costs. We are shouldering a lot of the FSCS levy burden because of the actions of others.

“We would hope this policy would see riskier firms shoulder more of the burden, but there is no easy answer to this.”

However, a legal specialist claimed such an insurance policy could be costly and have limited effects.

Alan Hughes, a partner specialising in financial services at City law firm Foot Anstey, said that the policy would likely only apply to people with potential personal liability, such as those who had previously traded as part of a partnership or as sole traders, because other firms trading for more than 15 years should already have PI insurance. He said: “This policy is a substitute that does not get rid of the liability. It is attempting to find a solution to the problem, rather than addressing the problem itself.”

However he added: “You can see why someone would feel pretty vulnerable if they were a sole trader and retired. We have seen people with significant liabilities land on them and that is pretty distressing, but that is a small part of the market.”

The comments came as research by Apfa, together with provider and long-stop campaign partner Zurich, found that 63 per cent of advisers thought an insurance-based solution would provide greater stability for the industry.

However, 52 per cent of advisers thought such a solution could impose higher costs on them.

Another proposal – a 15-year long-stop from the end of ongoing advice – was met with some criticism, with only 37 per cent of advisers believing this would lead to better consumer engagement.

Richard Howells, UK intermediary director for Zurich, said: “By exploring other options with advisers and considering other ways to cap liability we believe this will help drive greater business value for all advisers and provide greater stability to the industry.