It is becoming ever clearer that the professional indemnity insurance market for financial advice is not fit for purpose.
It has now emerged that PI insurers are limiting the number of defined benefit transfers that advisers can do over the course of a year – presumably to make sure companies do not fill their boots on this business and become reliant on it.
One adviser has been told by his PI insurer that he can only do between three and five transfers a year.
Such are the restrictions being placed on advisers by their insurers – and such is the due diligence they are having to do – that you could argue the ongoing regulation of transfers has effectively been outsourced to PI insurers.
Advisers cannot be blamed if they wish to wash their hands of the whole thing and leave the DB transfer market behind completely.
There is only so much shopping around that can take place when the PII market is so small.
If this were to happen, the losses would of course be borne by consumers because they would be unable to find professional, high-quality advice on whether they should transfer their DB pension or not. And in the absence of high-quality advice, they may find themselves falling prey to more suspect services.
At this point it should be highlighted that the Financial Conduct Authority thinks the opposite will happen – that more ‘high-risk’ advisers will leave the industry and leave the ‘low-risk’ ones behind.
This may well happen, but the fundamental issue is that the PII market has been facing long-term problems that go beyond the increased compensation limit for the Financial Ombudsman Service or the rising number of DB transfers.
There is a market opportunity for insuring the growing body of increasingly professional advisers, but it remains to be seen whether anyone will take it.