The Personal Investment Management & Financial Advice association has warned of an “existential threat” to the advice industry amid “enormous” increases in their professional indemnity premiums.
The trade body said the shrinking availability of cover meant its members felt they were being “penalised twice” alongside exponential increases in their regulatory bills.
A survey of 84 member firms found only 17 per cent of advice bosses had confidence in their ability to secure affordable professional indemnity insurance in the future.
More than half of the respondents, 56 per cent, said their cover now contained restrictions, such as defined benefit work, which had left them without cover for advice prior to the insurance policy.
Tim Fassam, director of government relations and policy at Pimfa, warned the lack of affordable insurance was a “genuine existential” threat to the advice industry.
He said: “Advisers are increasingly concerned about their ability to gain comprehensive cover, which not only harms their ability to operate in future, but also represents a barrier to new entrants into the market.
“This only feeds into concerns we have about businesses failing as a result of claims, and falling onto the FSCS as a result.”
In September, the Financial Conduct Authority told its annual public meeting it was aware of adviser concerns over a hardening of the professional indemnity market and that it was working to tackle shortfalls in cover.
In June the FCA told FTAdviser it had undertaken "reactive work in 478 cases relating to professional indemnity insurance for financial advice firms" since the beginning of 2019.
This was despite claiming earlier this year cover remained available for advisers despite coronavirus concerns.
Mr Fassam said Pimfa understood providing professional indemnity cover was a commercial decision for insurers.
But he added: “It is also clear the increase in premiums over the preceding five years has ultimately been driven by the unintended consequences of policy decisions and concerns about supervision.
“Government, regulators and industry must work together to ensure policy is designed in a way that is predictable and allows a healthy and diverse market to thrive.
“If these aims were to be achieved it should follow that PII premiums fall to more manageable levels.”
It comes as Pimfa sounded alarm bells earlier this month over its members facing crippling increases in their Financial Services Compensation Scheme bills.
The trade body’s research found 45 per cent of member firms had seen jumps of more than 100 per cent in their levy over the past five years.
The vast majority, 82 per cent, said FSCS costs now accounted for at least 20 per cent of their outgoings, excluding payroll and accommodation costs.
rachel.mortimer@ft.com
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