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FCA set to take action on disclosing PI shortfalls

The FCA is set to crack down on the lack of disclosure of shortfalls in professional indemnity insurance among advisers and wealth managers, experts warn.

Speaking at an Institute of Chartered Accountants in England and Wales conference in London last week, UBS Wealth Management head of strategic partnerships Graeme Price explained that advisers can currently recommend investments without having to inform clients or providers about the terms of their PI cover.

He gave the example of a firm that advises a client with £5m in assets to invest with a discretionary fund manager but which only has PI cover for investments up to £3m, leaving £2m uninsured.

Price said the lack of disclosure of gaps in PI cover is being discussed by senior regulators. He expects regulatory action, particularly as he believes the PI market is set to contract further.

He said: “At the moment, there is no requirement for anyone to disclose what their exclusions are. I wonder how long that will last?

“Just because I have the necessary knowledge, would you really want me advising on it if I am not covered?”

An FCA spokesman says: “Before the FCA was set up, the FSA board discussed the market for PII for financial advisers with a view to revisiting the subject in the future. The FCA continues to look at the whole advice market, including PII, as part of its overall objective to ensure the market is functioning well.” 

Yellowtail Financial Planning managing director Dennis Hall says: “Not only are PI shortfalls a potential disadvantage to clients but they can put advisers out of business. Both consumers and advisers need to understand what they are and are not covered for.”


David Morrey, BDO

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There are 4 comments at the moment, we would love to hear your opinion too.

  1. What about disclosing PI and capital resources for Providers too?? Given that (allegedly) Capita Financial Managers Ltd has no PI, nor any substitute capital resources of its own or from its company, it seems to me to be highly relevant that advisers with any sense would only want to introduce business to providers whose own PI and resources are sufficient to stand behind any errors they make – assuming of course that advisers are not always to be held to blame for everyone else’s failings …

  2. PI is the biggest Ponzi scheme in the land, and it is made mandatory by the regulators who complain it is inadequate?


  3. It doesn’t really matter, does it?

    The fact that you are insured now will be of no use when it all goes south and the PI insurers refuse to cover you any more.

  4. Obviously it’s foolhardy to advise on anything that isn’t covered by your PII but, I suggest, the main reason for the contraction in the PII market is the FSA’s ongoing policy of regulating by hindsight. How can PI insurers underwrite the provision of cover for advice which, at the time it was given, may well have conformed with the rules and/or best understood practice of the day but which the regulator, years later, declares defective because it doesn’t tick a whole new set of boxes in accordance with an entirely new and much more stringent set of criteria?

    It all started with the pernicious witch hunt of the pensions review and has got progressively worse ever since. Add to that the FSA’s practice of:-

    1. dumping onto intermediaries responsibility for its own failures/negligence/oversights, for example by

    2. classifying providers (such as KeyData) as intermediaries,

    3. shucking off responsibility for just about everything with accusations of inadequate due diligence and

    4. claiming that authorisation is not the same as approval (so of what value is regulatory authorisation? Extremely little it would seem.)

    Some time ago, Martin Wheatley was quoted as having said that the FSA Mk.II would not perpetuate its predecessor’s policy of reviewing everything by hindsight, but that aspirational sound-bite seems now to have been quietly swept under the carpet.

    Suitability letters are no longer about explaining to clients the Proposition, Costs, Risks and Tax considerations (which, in a sane world, is all they should need to be). They’ve become documents that will hopefully be bomb-proof against a trying-it-on complaint that may arise at some unknown future date. The longer and more involved they become, the less likely they are to be read, let alone understood or appreciated by the client. As a result, a steady process of public disengagement develops. Clients neither want to have to plough through or pay for these weighty and convoluted documents. But the regulator, in its maniacally obsessive quest for perfection, insists that these are what must be provided, as a result of which the advisory process is becoming increasingly bogged down in bureacratice processes and red tape.

    On top of all that, we have the feeding frenzy of CMC’s, responsibility for the regulation of which was dumped by the FSA onto the MoJ which, surprise, is now being reported as not being up to the task.

    It’s all gone completely bonkers and, worse still, the latest regulator seems to have no idea what to do about it. Streamlined advice will never come about because, to create such a framework, a good 50% of the FSA’s RDR would need to be stripped out and flushed away to its righful resting place. It’s ghastly.

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