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.”