The number of defined benefit transfers has reduced from the peak we saw a year or so ago, but demand from clients who want to consider if a transfer is suitable remains high. Advisers need to make sure their processes keep up to date with the continuing changes from the FCA. However, it is the thorny subject of professional indemnity insurance that is, perhaps, the greatest challenge for many advisers, and the issue which could lead to a shortage of access to affordable and professional advice.
Many advisers who have renewed, or are in the process of renewing, their PI cover will have experienced providers taking a stronger line.
Some of the measures include renewals for only 12 months rather than the previous 18-month period, higher excesses, restrictions on the number of transfers that can be carried out by the firm, and no cover for certain situations. This can be in addition to the hefty hikes to premiums which, in some cases, will see firms being asked to pay three or four times the previous cost.
However, there are some steps firms can take to ease their PI pain, bearing in mind the current market for financial advisers is small.
The most obvious tip is to start the process as early as possible, three months or more before the renewal date. Brokers involved in the market report some firms’ first involvement being a week or two before renewal, which makes the position much more difficult.
Firms should have a written document that outlines their philosophy around defined benefit transfers, and sets out the framework within which the business operates.
This could include whether the firm considers requests from existing clients only (which is likely to be a lower-risk position), accepts wider referrals, and details the checking and compliance process, plus who carries this out.
It’s also crucial that a full, detailed record is kept of all transfers which have been considered by your firm.
That isn’t only the cases where you have given full advice, but also clients who speak to you at an earlier stage, such as during a triage service, but decide not to proceed further.
As with any insurance, highlighting any other relevant issues is also key, rather than leaving the insurer to find out at a later date; for example, whether you have been involved in any British Steel cases, or if there has been an acquisition of another firm, documenting the steps you have taken to minimise any risks.
Overall, this is an opportunity to promote your business. You want all relevant information set out in a clear, attractive, easy-to-understand format, highlighting your (and other key personnel’s) availability to discuss any areas further.
This is probably not an issue most advisers want to spend time on. But demonstrating why your firm is a better risk than others helps reduce your (and your clients’) costs and means you can continue to be in a position to help people in this complex area of business.
Andrew Tully is technical director at Canada Life