A professional indemnity insurer has said it will take into account whether an advice firm has adopted the Personal Finance Society’s Pension Transfer Gold Standard when underwriting insurance policies.
Liberty stated it will ask firms that want cover for defined benefit transfers going forward whether they have achieved or applied for the gold standard and stressed it would be one of the conditions affecting the PI policy.
Keith Richards, chief executive at the PFS, said that Liberty had made the gold standard a quality seal for its PI products at the PFS Graduation Ceremony last week (April 26).
He said other insurance firms had indicated they would also require advisers to confirm a commitment to the standard to get such cover but did not disclose company names.
The PFS hopes the standard, developed by a pension task force part of the PFS, will help clients understand what to expect if they get DB transfer advice and will act as a quality assurance for advisers conducting transfers in the market.
The ‘gold standard’ code — which commits a firm and its advisers to nine principles of ‘good practice’ — was developed following the fallout from the closure of the British Steel Pension Scheme in 2018 which led to consumers being lured in by cheap deals offered by unregulated entities and rogue advisers.
Liberty's gold standard requirement is the latest quirk thrown at advisers looking to continue in the DB transfer market since the limit for awards from the Financial Ombudsman Service was raised from £150,000 to £350,000 on April 1.
At the time, the FCA said in the worst-case scenario the increased compensation limit would lead to 1,000 'higher risk' advice companies leaving the DB transfer market and advisers raised concerns the cost of their PI insurance would "cripple" them.
FTAdviser has since heard of cases where advisers saw their PI excess go up as much as tenfold for the coming year.
PI insurance firms have also placed restrictions on the volume of pension transfer business they will allow small advice companies to carry out.
Dave Penny, adviser at Invest SouthWest, said there was nothing particularly revolutionary about the nine principles of the Gold Standard and described them as simple, logical down-to-earth principles to which all firms should adhere.
He said: "[The standard] should bring down the cost of PI and enhance the reputation of our industry. Rather than acting as another barrier for advisers, I hope the Gold Standard may promote an appetite for this kind of insurance among the providers, removing a barrier."
Paul Stocks, financial services director at Dobson and Hodge, said the firm had applied for the gold standard as the principles seem like common sense from a client’s perspective.
He added: "My concern is that PI is essentially backward and forward looking and the risk is that firms face having no PI cover for advice given in the past when, at the time, they had cover.
"It’s been mentioned elsewhere that PI insurers are putting into place what is essentially regulation and while that’s fine if there’s bad practice we need to ensure there aren’t ‘innocent victims’ who suddenly face a lack of PI cover due to changes in that market through no fault of their own."
Financial planner at Red Circle Financial Planning, Darren Cooke, said the poor practice seen in DB transfer advice made it clear that standards needed to be higher.
"The PFS Gold Standard is one very good way of moving this forward," he said. "If you want to stay in this area of advice, I think you must be prepared to reach ever higher minimum requirements.
"The fact the PI insurers are now adopting the PFS Gold Standard is just one of those and if it helps keep PI premiums for firms lower while delivering better client outcomes all the better."
imogen.tew@ft.com
