The Financial Conduct Authority has been urged to clarify if firms’ current professional indemnity policies will cover abridged advice.
The adviser trade body, the Personal Investment Management and Financial Advice Association, said it is concerned that advisers will assume that their existing cover will automatically cover abridged advice and the administration of transfers when the proposals are implemented.
But this might not be the case, it warned.
Writing to the FCA in the trade body's response to the consultation on abridged advice, Simon Harrington, senior policy adviser at Pimfa, wrote “we are unclear as to whether or not this will be the case".
Abridged advice was a concept presented by the FCA in its contingent charging consultation earlier this year.
The new type of advice is expected to include an introductory chat with the client, where the adviser can get some high-level information about their circumstances in order to determine that the consumer isn’t a viable candidate for a transfer.
The result of abridged advice can only ever be to not transfer, and the adviser is expected to conduct a full fact-find and risk assessment, including an assessment of the client’s attitude to transfer risk in line with the FCA’s guidance on assessing suitability.
Pimfa’s understanding of this concept is that it is not the same as full advice, and therefore “the potential risks in providing abridged advice is lower than providing full advice on a defined benefit transfer,” Mr Harrington said.
However, “if underwriters do not share our view on abridged advice and price the risk at the same level of DB transfer advice, then the number of firms being able to offer abridged advice is likely to be low,” he added.
The trade body expected the FCA to have engaged with the insurance industry in respect to the proposals set out in the consultation, especially after seeing the consequences of increasing the Financial Ombudsman Service compensation limit to £350,000 In April. The move had made it extremely difficult for advisers to find cover “at a cost which is economic and as a result are withdrawing from the market,” Mr Harrington said.
Damian McPhun, partner at Beale and Company Solicitors, who specialises in claims against IFAs, agreed that the watchdog “does not engage enough with the PI market when it comes to making changes or setting out position statements”.
He said: “The PI insurers will usually respond to the consultation papers, but you sometimes feel the FCA is reluctant to sit down and have a sensible discussion with PI insurers.
“Given that the market of insurance for IFAs is so difficult, the FCA really has to be considering, in everything it does, the impact on the PI insurance.”
The FCA has been approached for comment.
However, Mr McPhun took a positive view on the potential impact of the new advice concept in PI cover for firms.