View more on these topics

Leader: PI hamster wheel does no-one any favours

Natalie Holt, journalist with Money Marketing Photo by Michael Walter/Troika

The redress system for poor investment advice is broken.

Without wanting to dive into the rights and wrongs of the Financial Ombudsman Service (there is no space for that), you need only look at the interaction between professional indemnity cover and the Financial Services Compensation Scheme to see just how ridiculous the current model is.

The FCA says PI insurance is about covering losses arising from professional negligence, so that firms can pay justified claims, and to “prevent insolvency and excessive claims on the FSCS.”

The regulatory definition of what PI cover does and the reality would be laughable, if it was not so tragic.

Advisers are stuck in an endless feedback loop: PI insurer refuses a claim, firm goes bust, passing claims onto the FSCS and eventually higher levies for everyone else. This vicious cycle also serves to create a further hardening of the market for PI, and so the loop continues. You know a market is ineffective when the boss of the FSCS (of all organisations) says it is not fit for purpose.

Everyone knows the model is broken, the question is how to fix it. On the FSCS side, a product levy has been touted, rejected and is now seemingly back on the table – thanks to a group of MPs and some targeted lobbying by Tenet and Apfa.

The recent early day motion tabled on FSCS funding reform even goes so far as to call for a product “whitelist”, though it is not clear how this would work in practice. Would the FCA be responsible for drawing up such an approved products list? And given its track record, do we trust the regulator to do this effectively?

On PI cover, the idea of introducing standard terms offers more promise. This would reduce the prevalence of convenient exclusions and get out clauses the PI insurers are all too keen to deploy.

Beyond wholesale FSCS reform, what advisers really want to see is an effective PI market for all parties concerned – not just the insurers.

Unfortunately, there are a minority of firms who are doing their level best to damage the reputation of the advice profession. To manage this risk properly, we need a more coherent PI market. A more pro-active stance from the regulator to shut down the rogue firms earlier would not go amiss either.



Leader: Unauthorised firms are a blot on the adviser landscape

The other day I found myself talking with friends about how it is that people get suckered in by scams. I mentioned a recent story on a supposed gold mining company where investors were sent Facebook feeds with video and photo updates showing developments at the mining project. As it turns out, the companies behind […]

Leader: The drive to a mega-pensions regulator

For a while now, there has been a clamour for a stronger regime to govern master trusts. Given the role they play in auto-enrolment, concerns have been raised about the ease at which someone can set up/purport to offer a master trust, the fallout for savers if a master trust fails, and general weak regulation […]

Leader: Platforms and the ‘too big to fail’ issue

How far does adviser due diligence have to go? Beyond any product recommendation, there are the providers to consider, plus the platforms everything is running off. But what about the technology providers powering the platforms too? The platform market, and in particular the tech providers behind them, are fast becoming too big to fail. With the […]


News and expert analysis straight to your inbox

Sign up


There are 2 comments at the moment, we would love to hear your opinion too.

  1. Yes it is broken and has been for some years. Unfortunately the current bodies involved in trying to fix it FCA, FSCS and Politicians simply don’t have what it takes to get

  2. It sorted. Bet we are still talking about this in a years time

Leave a comment


Why register with Money Marketing ?

Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

News & analysis delivered directly to your inbox
Register today to receive our range of news alerts including daily and weekly briefings

Money Marketing Events
Be the first to hear about our industry leading conferences, awards, roundtables and more.

Research and insight
Take part in and see the results of Money Marketing's flagship investigations into industry trends.

Have your say
Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

Register now

Having problems?

Contact us on +44 (0)20 7292 3712

Lines are open Monday to Friday 9:00am -5.00pm