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&#39Mutual PI scheme would help smaller IFAs survive&#39

Bristol IFA the Falcon Group believes a mutual professional indemnity

insurance fund supported by providers is the only way that many

smaller IFA firms will survive the current PI crisis.

It believes that although such a scheme will inevitably cause product

costs to rise and IFA commission to be reduced as providers meet the

cost of PI, it is the only way for many smaller firms to continue

trading.

Falcon was granted a 12-month PI waiver in January by the FSA but

only after increasing its reserves by £939,000 to about 10 per

cent of turnover.

But it says the waiver option will not be an escape route for most

IFAs as they have insufficient reserves.

Falcon believes the number of companies without compliant cover is

“huge” and far higher than FSA estimates.

Managing director Julian Telling says: “It is an absolutely

ridiculous situation. Excesses have gone through the roof. Just a few

small successful claims from clients in one year could be

enough to put a firm out of business. We have to find a workable

long-term solution.

“I recognise that a mutual fund would have a modest upward effect on

products or reduced commission income or even both but it would at

least ensure the IFAs could continue trading.”

But other IFAs disagree. Independent Financial Advice centre managing

director Brian Evans says: “The mutual option funded by the industry

is an inherently dangerous idea. The risk would be borne entirely in

one area. The problem is that there would be a tremendous initial

cost to establish a reserve, which would have to be covered somehow.

The good IFAs would end up paying for the bad guys&#39 mistakes.”

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