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PFS: Advisers struggling to get PI cover for pension transfers

PFS chief executive Keith Richards

The Personal Finance Society has warned many of its members are struggling to find professional indemnity insurance cover for pension transfer advice.

PFS chief executive Keith Richards tells the Financial Times the pension freedoms are in danger of being “de-railed” if advisers continue to face problems getting adequate PI cover.

Richards says many of the PFS’s 37,000 members are now struggling to secure PI insurance.

Richards tells the FT: “We have cases where an adviser was declined renewal of their [professional indemnity] cover, with the insurer explaining they were reducing their exposure to any future [defined benefit] transfer claims. The adviser then managed to secure alternative cover but at a significant hike in his premiums.”

Zurich said last week it would stand by its decision to withdraw most of its PI insurance offerings from IFAs, but did not confirm whether DB transfer risks were behind the decision to drastically cut the PI cover.

According to Money Marketing research, sixty per cent of advisers believe personal indemnity cover is too expensive, while 40 per cent saw their bills increase at last renewal. Around half of financial advisers have PI renewal periods lasting one year or less.

The FCA has increased its scrutiny of defined benefit pension transfers following the British Steel Pension Scheme saga, with nine advice firms so far stopping pension transfer advice.

The work and pensions select committee and the Liberal Democrats have both called for bans on contingent charging.



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There are 6 comments at the moment, we would love to hear your opinion too.

  1. “Many of the PFS’s 37,000 members are now struggling to secure PI insurance”.

    Why it is that the product is not regulated by way of licence as are, for example, drugs and medicines”, certified as fit for a particular purpose?

    This could reduce the need for a number of layers of regulation and make getting PI much easier.

    For example, drug companies that develop medicines have to have the product tested then licensed; the “distribution” channels are either doctors, by way of prescription, or chemists if the product can be sold over the counter with some restrictions.

    If the medication subsequently develops a fault, it is the drug company who is ultimately responsible and not immediately and absolutely the person who prescribed or dispensed it in good faith in accordance with the conditions the drug was licensed to treat.

    At the moment, for those providers who rely on IFA distribution, in all or a major part, for their product ‘sales’, we have the somewhat odd situation that if the product is found to be flawed (its literature classed as misleading or inaccurate, it fails to perform in line with illustrative expectations or has other unforeseen failings, such as in this situation, that come to light after the “sale”), it is more often than not that the IFA firm is responsible for the redress and under current FOS rules seemingly forever.

    Such situations can be avoided if the product was licensed and, in addition, the client answers a number of simple yes/no questions at the point of accepting the advice/sale, on the application or proposal form such as:

    A full fact find of my circumstances has been undertaken
    My attitude to risk has been discussed
    This product’s risk profile is… high/medium/low
    I have been given and have read and fully understand all the product information in relation to this product
    I understand that the illustrative values are not a guarantee, the actual value at maturity or encashment may be more or less than the amount invested
    This product suits my current financial requirements in regard to… (investment/protection/ pension/ retirement planning).

    This suggested sample of the type of confirmation required is based upon what clients most often cite they had no knowledge of when lodging a complaint.

    So, given that most consumer complaints fall into the above categories, such a simple step would significantly reduce the liability burden of IFAs going forward and if the product was “licensed”, such a simple combination of licensed product and client declaration would remove, in most if not all cases, the possibility of an IFA firm being responsible for redress in perpetuity.

    It would also deal with the very difficult situation of consumer “selective memory loss” when making a complaint!

    Just a thought?

    • Just a thought, but a thought that serves IFAs’ interests more than anyone else’s. There are some inherent assumptions, most obviously that pension transfers should happen.

      There are firms out there that don’t *need* PI cover to advise (because it’s only IPRU-INV 13 firms where it’s mandated); those firms will be bigger, and far better-capitalised, than your typical IFA firm.

      I’d suggest that such a firm is more likely to have rigorous controls over the advice and, just as importantly, is able to compensate consumers when it gets the advice wrong. I’m not certain that *transfer* advice being driven towards such firms is necessarily a bad outcome. It doesn’t preclude *switching* advice being given by small IFAs once a consumer’s transferred from their DB scheme, if the investment’s maybe not quite right for the consumer.

  2. Same old same old ~ at the first whiff of trouble, the PI insurers pull up the ladder, thereby confiscating the cover for which they’re been all to willing to collect premiums from their policyholders year after year.

    It shouldn’t be allowed but, if the powers that be try to force insurers to provide cover indefinitely (subject to payment of a reasonable continuance/run-off premium), they’ll just say Get stuffed and withdraw from the market.

    For its part, all the FCA seems able to come up with is a patently ludicrous proposal that advisers should self-insure.

  3. And the PFS is helping in what way exactly?

  4. Equitable fund the FSCS !!!

  5. It is a shame that a number of advisers continue to be influenced by fees they will earn and not pause to think is this the right thing to do for the customer – the firms who have been involved in the British Steel pension scheme scandal (over 50 firms have been identified) only had themselves to blame for what is coming next.

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