PFS to meet Treasury and FCA to discuss PI

PFS to meet Treasury and FCA to discuss PI

Keith Richards is to meet with HM Treasury and the Financial Conduct Authority to discuss solutions to the issues financial advisers are facing when renewing their professional indemnity insurance cover.

The Personal Finance Society chief executive told FTAdviser he had warned Treasury officials in a meeting about the issues surrounding defined benefit transfers, in particular the PI market, and that they could end up "derailing pension freedoms".

He also told them the government may need to intervene to help advisers who are facing higher premiums on their PI policies as insurers are factoring in the new Financial Ombudsman Service Fos compensation limit.

The limit increased from £150,000 to £350,000 in April as part of the FCA’s plans to allow small businesses to use the claims service and since then providers have placed restrictions on the volume of pension transfer business they will allow small advice companies to carry out.

Mr Richards suggested the government should introduce a protection levy – a proposal the PFS made when the FCA consulted on the Financial Services Compensation Scheme funding reform in 2018.

The underlying idea of the levy, collected centrally by government, is that a certain cost is levied on the products sold, for instance seven basis points, to cover the approximately £700m a year regulatory expenditure.

But advisers would also contribute to the fund, which would pool the risk and in turn dispose of the current need for PI insurance.

Mr Richards said: "We are at a point where the burden on a smaller market is now becoming unattainable, and it has been for some time.

"We are calling for a radical overhaul, which would be in the best interest of the public and the profession alike."

He said the public needed to be protected but it "can't be at all costs".

He added: "The FSCS is a broken model that will continue to create unexpected amounts of compensation, which will continue to be a burden on the sector, so it’s about time this is addressed."

Paul Stocks, financial services director at Dobson & Hodge, argued that "there is a feeling that the DB advice market is being controlled to a greater extent by the PI insurers than perhaps the FCA, and that clearly can’t be sensible for an effective market for advice in the longer term".

He said: "In the short term, PI is facing significant headwinds but only in the fullness of time will they know the actual liabilities (and the root cause)."