Nick Smith, Labour MP for Blaenau Gwent, and Steven Kinnock, Labour MP for Aberavon, are to hold a roundtable with advisers and key regulatory bodies, such as the Financial Services Compensation Scheme, on February 27 to discuss issues with advisers’ PI and how the market operates.
The FSCS told Financial Adviser it is aware of the proposed roundtable but could not provide further details.It is understood the Financial Conduct Authority has not yet received an invitation.
Joining this roundtable will also be steelworkers and steel community MPs so they are able to have their say on advisers’ PI cover in relation to defined benefit transfer mis-selling and claims against bad advice.
In a meeting in Westminster last month (January 28), Alastair Rush, principal at Rutland-based Echelon Wealthcare, and Philippa Hann, managing director of litigation at Clarke Willmott, met with MPs to discuss the latest cases of DB transfer mis-selling in the areas of Cardiff, Newport, Scunthorpe and Teesside.
One issue raised was how the the PI market needs to change so that unscrupulous advisers are caught out, with Mr Smith agreeing to call in the FCA to discuss this matter further.
Mr Smith said: “It seems to me that we need to change the regulatory and enforcement context to make sure that professional advisers have the insurance they need to do a good job.
“Reform to PI is the answer because this is a safety net that catches both the good and bad advisers.”
Ms Hann suggested this could work if insurance companies refuse to insure any firm or adviser who has a history of claims.
She said: “If the insurers being asked to insure IFAs look into the history and claims history of the firm and ask the right questions, they can then refuse to insurer anyone with a terrible claims history.
“This will get rid of the cowboys from the market.”
But Mr Rush said the FCA was careful about making any changes to this market for fear that no IFA would be able to get insurance.
As PI policies are written on a claims made basis, the policy will only cover claims made known during the policy period, regardless of when the work was undertaken.
Each policy incorporates a retroactive date which excludes claims arising from things done, or that ought to have been done, prior to this date.
Once a policy has expired there is no cover in place in respect of claims that may arise even if the claim relates to work undertaken during the period of policy cover.
Mr Rush therefore argued insurers would be reluctant to move away from a claims made basis as they could experience an influx of complaints.
Mr Rush said: “The FCA is really worried about the insurance side of things because the insurance sector is a very influential lobby.
“If the FCA tells the insurer they cannot continue conducting business as they do now then there will be a lot of claims heading the insurers' way. Insurance companies will not want to change from their current stance.”
Mr Kinnock has previously called for similar PI rules for advisers as the ones that are in place for solicitors.
Under current rules an adviser’s PI policy can’t exclude any business or activity carried out by the firm in the past, unless the firm holds additional capital resources.
But since the British Steel pension transfer debacle more and more insurers have put in place exclusions on British Steel or even pension transfers altogether.
Typically, a financial advice firm with a PI exclusion would have an additional capital requirement of the higher of £20,000 or 5 per cent of investment income plus 2.5 per cent of insurance mediation and home mediation income.
But under the rules governing solicitors firms cannot have exclusions in their policies and they are required to hold a minimum indemnity of between £2m and £3m for any one claim.
Mr Rush said: “If you compare what advisers have to do to solicitors there is a lightyear of difference.
“If a solicitor wrote some business three years ago they will be insured for that forever and a day but as an adviser I could have written business for the British Steel Pension Scheme three years ago and could have received a letter from my insurer last week telling me I am no longer covered for this business.
“If the insurance market is to have any sense of resilience and credibility it must be perpetual. How we are insured is absolutely crazy.”
The FCA declined to comment.
amy.austin@ft.com
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