IFAs have condemned as pointless a new EU directive that will force IFAs to increase their professional indemnity cover by 50 per cent by April 2006.
Already reeling at the financial pain of dealing with the ins-urance mediation directive which requires firms to have £1m cover by January 2005, it has emerged that a separate directive places further PI demands on firms just over a year later.
The market in financial instruments directive – also known as ISD2 – will force the vast majority of IFAs to take out £500,000 extra cover, set aside £30,000 capital or have a combination of the two in place by April 2006.
While the IMD affects IFAs doing insurance business, Mifid hits those doing investment business and the vast majority that do both will have to comply with the PI requirements of each.
Under Mifid, only those few firms transacting investment-only business with no insurance business on their books will face greater flexibility, with the only requirement being to hold £1m PI cover or £33,000 capital.
Aifa director general Paul Smee says: “This does make the PI situation worse but the new regime introduces the concept of flexibility in trading PI for capital.”
Byrne Williams managing director Tony Byrne says: “This is another nail in the coffin for IFAs and shows that whatever the Government says, it does nothing for us.”
Cambourne Financial Planning director Mark Loydall says: “The question is what this additional cover does to protect the public and the answer is very little. But for the IFA, when PI is already an extremely difficulty area, this is no help whatsoever.”