I’m often asked whether or not one day, I will take the plunge, cross the bridge and become a financial adviser myself.
I know it would be an amazing career to have, fulfilling both personally and financially, with a great mix of technical and human challenges.
But one of those challenges certainly acts as a drag on any long-term desire I might have, and that is how much of a pain securing professional indemnity insurance would be, particularly if I wanted to conduct a significant number of defined benefit transfers.
Our pensions reporter Michael Klimes has taken a fascinating dive into that specific issue for our lead feature this week. Given we, yet again, have heard complaints from advisers under pressure from escalating bills, we thought it was about time to look at exactly why that might be.
There is a strong case to say that, when it comes to PI cover for DB transfers, advisers are getting pretty rough treatment when you put this in the context of how many firms are actually likely to get a complaint and/or go under as a result of unsuitable DB transfer advice.
A total of 19 firms have elected to pull out of the market or have had their permissions removed since the FCA began its enquiries into the DB transfer space. According to data Money Marketing obtained from the Personal Finance Society last year, there are at least 8,300 advisers that are qualified to advise on DB transfers, having either the G60 or AF3 pension planning certifications.
There have been 300 Financial Ombudsman Service complaints over DB transfers since the pension freedoms – a relatively small proportion of the hundreds of thousands advised on in that period – and only a third have been upheld. Does this likelihood of failure justify a 10-fold rise in adviser PI excesses for DB transfer business, as Money Marketing has heard recently from planners renewing their policies?
What’s more, there is now a significant amount of confusion over whether the limits to cover PI providers are placing on DB transfers are in fact compliant.
I recently heard of an adviser being given a £500,000 cover ceiling for transfers. The current rules state that advice firms must have €1.25m (£1m) in cover for any one claim and €1.8m in aggregate.
We asked the FCA whether having a lower level for, say, DB transfers breached this standard and the short answer was “it depends”.
But in the end, the FCA’s most recent review of DB transfers found less than half were suitable. PI insurers simply have to take heed of that. We also really can’t tell with any certainty whether or not margin pressure is taking a toll on their bottom lines.
Let’s see if they can find a better middle ground with financial planners from here on out.
Justin Cash is editor of Money Marketing. Follow him on Twitter @Justin_Cash_1