Regulation  

Could pooling insurance help solve advisers’ PI problems?

But Mr Kirby warns there is “always going to be the argument that, ‘If I am not involved in the high-risk area, why am I ending up subsidising other advisers in the marketplace?’”

While he believes in “collaboration and getting the right people around the table, exactly like what the PFS is doing”, he also suggests “you’ve got to look at the equality aspect of it as well, and that will always come into these types of conversations”.

If a company can demonstrate to an insurer that it has a robust risk management process in place, it will ensure it then has a better PI conversation, he recommends.

“There are two elements of risk that an advisory firm should be looking at – first, is it ticking all the regulatory boxes, and, when it comes to PI, is it looking at it from a commercial risk point of view?”

Importantly, he suggests advisers must understand exactly what PI covers because “too often people buy the insurance based on premium, get the policy documents, and then stick it in the drawer”.

“This is why we involve PI brokers and lawyers really early on in the process because when you look at the claims that go through when things go wrong, a large percentage are based around clients saying they didn’t understand what they were doing,” he explains.

“Anything that we can do collectively as an industry, and with the various regulators and professional bodies, to actually look at helping reduce risk in the marketplace, has got to be a good thing.”

He agrees “the whole system needs to be looked at”, but suggests it is just as important to not forget “the many good things happening in the industry”.

Looking ahead

Sir Steve Webb, director of policy at Royal London, says these issues are too often looked at in a piecemeal way when what is really needed is a system-wide review.   

Mr Webb says: “A priority should be to ensure that the well-run and well-governed advisers are not made to pick up the tab for the poor conduct of those on the fringes of the industry.

“A system that lowers costs for those who place less risk on the system and who put their clients’ interests first would be a big step forward.”

Indeed, Damian McPhun, specialist financial services litigation lawyer and partner at Beale and Company Solicitors LLP – who often deals directly with cases for advisers when they go wrong – says leaving it down to the individual PI arrangement of the company is, in a sense, “the most equitable way of doing it”.