A financial adviser seeking to renew his professional indemnity cover has been told his policy will not cover any potential liabilities relating to advice about the suspended Woodford Equity Income fund.
George Goward, of George Square Financial Management in Nottingham, was renewing his insurance with China Re when they raised the issue of Woodford exposure and asked him for a spreadsheet of clients exposed to the suspended fund.
Mr Woodford was forced to suspend redemptions from the Equity Income fund on June 3 following a sustained period of outflows reaching £9m per working day in May. The suspension followed a period of underperformance from the fund.
The initial 28 day suspension was later extended for an indefinite period as the fund manager seeks to raise sufficient cash to meet redemption requests. Investors in the fund are not able to access their investment while the fund is suspended.
Mr Goward said it was the insurance company which had raised the issue and added that it was the first time he had experienced an issue such as this.
Mr Goward said: "The underwriters requested a spreadsheet of all Woodford holdings after asking if we had any investors in the fund so it was definitely raised by them as we only have relatively small holdings in the fund. It is certainly the first time we have seen it."
China Re insurance company declined to comment.
But Julian Brincat, a professional indemnity insurance broker at Protean Risk in London, said the issue was not uncommon.
He said: "You have to be careful to ensure that you fully disclose any exposure to a failed or suspended fund at renewal so that it is not inadvertently excluded by the policy.
"It does happen often that when an adviser switches to a new insurer, the new firm does not want exposure to what might be historic liabilities. So there is certainly a precedent for this.
"A PI policy is supposed to cover error or omission in the advice process."
The advice market has already been hit with a wave of exclusions in the pension transfer space since the amount the Financial Ombudsman Service can award was raised from £150,000 to £350,000 in April.
Many advisers are being told they can only advise on a handful of DB transfers a year or had such advice excluded from their policies altogether.
Only yesterday (July 22) it emerged PI insurer Liberty won’t be accepting any new business in the defined benefit space, saying it doesn’t want to increase its exposure to the 'high-risk' area.