Speaking to FTAdviser today (May 11), Felix Milton, chartered financial planner at Philip J Milton & Company, explained last year in May the firm saw a 12.5 per cent increase on renewal from 2020.
This year, he has seen a 38.7 per cent increase on the May 2021 renewal, showing his PII costs have risen by a total 55.43 per cent in two years.
“Whilst our turnover appeared higher in our accounts this year, we explained this to insurers as this was due to a successful VAT reclaim on past management fees from HMRC (and which was paid in full to clients),” he said.
“We continue to hold DB transfer permissions which appears to be the main reason for the increases due to the market for these getting smaller day by day.”
Philip J Milton, managing director of the firm, explained that the “turnover sting” is “mean to say the least” as the £1mn is not company money.
In an email to the company, Philip Milton explained this is a regulatory obligation, which covers the firm against any unanticipated negligence which may arise and for which compensation could be payable.
“We have not had any claims for a rather long while and hope that will continue to be the case but there is almost an inevitability that something will happen at some point and that means clients have the cover - as well as the regulator satisfied we have the insurance too,” he said.
He added: “We are also one of the few remaining firms to offer comprehensive pension review services including final salary transfer guidance and this is one of the highest potential liability fields.
"This is why the premium this year, with tax, has punched way past six figures (so up 55 per cent in two years) and it will continue hereafter at high levels as it only covers the actual year of insurance, so action taken today which may create a negligence point in five years has to be covered ‘then’ and isn’t covered ‘now’.”
PI insurance, which protects advisers against claims for loss or damage made by clients or third parties, was accused by advisers of nearing its peak last year.
According to data published by the Financial Conduct Authority last July, the cost of PI premiums disproportionately affects the smallest advice firms.
Advice firms making up to £100,000 in revenue a year are forced to spend 5 per cent of that paying for PII, the data at the time showed.
Meanwhile firms making between £100,001 and £500,000 in revenue paid 3.1 per cent of that towards PII.
As a whole, advice firms paid 2.4 per cent of their revenue towards PII during 2020.
Between 2019 and 2020, the proportion of revenue small advice firms are spending on PII increased by 0.6 percentage points - from 4.4 to 5 per cent.
Some advice businesses saw premiums increase as much as 900 per cent in 2020, as a result of the pandemic and ongoing fallout from defined benefit transfer scandals.
In April, the Equity Release Council said it will offer adviser members reduced PI premiums following a warning from the regulator that the market is being looked at more closely.
The watchdog said due to more people reaching retirement either owning their homes outright or with a mortgage, it is considering the work it needs to do to ensure that the market is “working well”. This will include checking standards among intermediaries giving advice.
In 2020, the FCA sounded alarm bells over unsuitable equity release advice after a review found some mortgage advisers were falling short in the market.
An FCA spokesperson said: "We have acknowledged that PII costs are rising, including because of specific challenges in the financial advice sector.
“Our Consumer Investment strategy sets out how we will focus on continuing to improve the quality of advice given as well as the ability of a firm to cover the cost of redress when it does make a mistake.
"We are continuing to engage with insurers, purchasers of PII and trade bodies.”
What do you think about the issues raised by this story? Email us on FTAletters@ft.com to let us know