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Fees will not cover our PI liabilities

Fees do not pay for professional indemnity insurance. We must remember that IFAs are insurance salespeople. They sell a product. Advice is ancillary to that process.

In fact, advice is not only given at the time that the product is sold but is implicit so long as the policy exists.

Most IFAs are prepared to stand by the original advice given to a client and in that respect, the fee earned or commission paid covers not only the selling expenses but also the PI Insurance.

So far, therefore, there is a similarity between IFAs and other professionals.

The difference lies in the fact that with an IFA, there is a product sold. As a conseq-uence, there is a continuing PII liability until the policy is no more – perhaps in 30 years time.

Even though most IFAs could rebut a complaint for misselling, the reality is that we may not feel we can rely upon the FOS to support us, partic-ularly where insurance comp-anies are rebutting nothing and giving the impression that there is a reward to every complainant.

So the PII insurer is int-erested in how many policies and what they were, since 1988 perhaps. The cost becomes greater for every year that passes. The PI insurers know that yesterday we were all done by pension “misselling”, today by fraudulent endow-ment mortgage complaints and tomorrow – it could be anything.

Invariably, none of this is the fault of the IFA. So how can we cover the cost of PII?Until now, commission has been enough to cover PII and FSA costs but commission has either gone or is disappearing. So what now?At least with commission and renewals IFAs used to have a reasonable level of income, particularly for regular-premium contracts, and an income which continued year after year. Fees will not do that. Fees are a one-off payment for a service given and finished with.

Anyone who gets a fee for arranging a Sandier-style policy is storing up deep trouble for the future.

There must be a system for liability limitation. If this is not possible, who would give advice to an individual for one policy. Supposing it is a stakeholder pension – £100 a month for 10 years. The commission would be about £200. The actual cost of PII and the FSA for this company over the last 12 months in relation to one such policy is about £200 but the liability is for at least 10 years and I am almost certain to find that I am handling a claim because the policyholder’s benefit is lost on means testing in 10 years time. Is the answer “run-off liability” PII every year? Unaffordable? Yes but the real cost. We need to face up to it now.

Malcolm BaxterBaxter & Lindley,Tring, Hertfordshire

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