Financial Advisors are well aware of the extraordinary increases in professional insurance costs and a warning has been issued by the Personal Investment Management & Financial Advice Association (PIMFA) that financial advice may become extinct.
17% Confident of Getting Insurance
A recent PIMFA survey of adviser firm members found that only 17% had confidence in securing affordable professional indemnity insurance in the future. That's 83% that are not confident!
PIMFA said: “members feel they are being penalised twice as the availability of cover is fading along with exponential increases in their regulatory bills”.
56% of members said, “their cover now has restrictions for work such as defined benefit transfers and has left them no cover for that type of advice”.
PIMFA director of government relations and policies, Tim Fassam, said: “There are concerns for the advice industry due to lack of comprehensive cover and concerns about businesses failing as a result of claims and having to rely on the FSCS”.
The Financial Conduct Authority (FCA) told its annual public meeting in September, that they are aware of the adviser concerns and are working to tackle the reduced amount of professional indemnity cover and insurers prepared to act in this market.
Earlier this month PIMFA also reported their concerns of members facing crippling increases in their Financial Services Compensation Scheme Bills.
We too have already had to absorb 400% increases in our professional indeminity insurance premiums in the last 3 years alongside policy excesses increasing at the same level meaning that every year we pay 4 X as much in premiums, must pay 4 X as much for excesses (if a claim is made), have to pay ever high levies to the regulator, the ombudsman and compensation schemes in addition to having to keep a minimum 3 X as much capital in reserve 'just in case' for capital adequacy reasons. We are talking £hundreds of thousands when you combine all of the above just for our business alone.
It is time that government, regulators and the industry work together to create a policy regime allowing a healthy and diverse market to thrive, drive out the rogues, drive out poor regulation and drum out poor compliance with those stronger regulations. If these aims are achieved it will follow that adviser insurance premiums fall to a more manageable level for both advisers, insurance underwriters and ultimately the consumer that faces ever higher fees.
If not, we are afraid we will also be forced to leave the industry too as we would likely be more profitable selling 'rubber bands' and fizzy drinks on a beach (and less stressed).