Major distribution firms are in talks with a global insurance broker to secure a deal to collectively insure their historical advice liabilities, Money Marketing can reveal.
National advice firms and networks are investigating the possibility of brokering a deal to incorporate several firms’ liabilities under a single arrangement with insurance broker Marsh UK, a subsidiary of US-listed Marsh and Mclennan which also owns investment consultancy Mercer.
One senior distribution head told Money Marketing: “There is no long-stop in our industry so there is a liability there forever, which makes it very difficult to value or sell a business.
“Any one business would struggle to get an insurance company to take on their liabilities after a certain date. In effect the insurer would be putting all their eggs in one basket and concentrating risk by covering that one network so it is difficult to find anyone to do it. If you are able to secure lots of networks then theoretically there is a bigger pool with diversity of risk and of course a bigger premium, so you might find someone who is interested in doing it. In this case, Marsh is acting as the broker.”
Money Marketing understands large adviser networks including Tenet and Sesame are part of the negotiations. Chase De Vere and Bellpenny have also been approached about a potential deal, but are yet to decide on whether they want to be involved.
Apfa and former Tenet group director Geoffrey Clarkson have also been involved in industry talks. The regulator is said to be aware of the negotiations, and is interested in a potential liability solution that could prevent claims from falling on the Financial Services Compensation Scheme.
Sesame was fined £6m by the FCA in June 2013 for failures to ensure that investment advice was suitable and failings around its systems and controls for governing appointed representatives.
Money Marketing understands concerns over who takes responsibilities for Sesame’s long-term liabilities have been the primary barrier to the sale of the network after Sesame Bankhall Group was put up for sale by parent Friends Life in February.
Philip J Milton & Company managing director Philip Milton says: “In our industry the longer a firm has been around the more insurers fear its liabilities. It makes it very difficult for established firms, big or small, to secure insurance.”