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PI&#39s the limit for many IFAs

In the days before regulation, I recall that I encountered several clients who had been sold redundancy cover by their mortgage provider where they were self-employed or on short-term contracts. The cover was therefore inactive.

When I approached the lenders, they admitted that the cover was inappropriate and refunded all the premiums plus interest. In short, there was never any prospect of a claim being paid.

Given my tendency to voice my concerns where the FSA is slow to act, many IFAs have contacted me about the professional indemnity issue. As we have seen in stories recently, a number of IFAs are facing premiums three times last year&#39s level and excesses have never been higher. As many claims now fall under the excess, we find ourselves buying cover at the full price which only covers megaclaims.

Now, PI underwriters will no doubt write in and tell me and everyone else that I just do not understand the underwriting of PI. Sorry but I do for, as a youngster, the first class I underwrote was PI cover (yes I admit it, I was once a general insurance underwriter.)

The FSA needs to debate openly the requirement for PI in the immediate future and consider the other options. It is just not acceptable for the regulator to give the impression that the current approach to covering errors and omissions will continue when so many IFAs are struggling to find cover at all, let alone cover at an economical level.

I applaud the stance taken by Sofa&#39s Brian Lawless in raising the issue through open debate and allowing Sofa members the opportunity to quiz those in the know.

As networks discontinue run-off cover, we must recognise that this leaves many of us in the position of considering moving to Florida – the state which, I am told, allows you to be bankrupt but to retain your property.

Is it not ironic that, as we face these problems, Ron Sandler suggests we give advice to the public and charge less than the cost of its provision? To add insult to injury, he still leaves the buyers of his non-toxic products in the position of being able to sue their “advisers”. Does he really believe that the banks will be prepared to advise on this suite of products, where suitability is not an issue, nor is know your client, but they remain open to action by the Financial Services Ombudsman?

We need to drop PI now and replace it with a funded scheme which covers not just closed but ongoing firms. Diverting all fines to this fund would give it a real chance of success.

The irony of this suggestion is that, if my memory is correct, Garry Heath pushed for this some years ago, not long after he was pushed to one side to launch a more subtle trade body.

Perhaps the prime movers now realise that although subtlety may be good for short-term gain, it lacks integrity and maybe that is why we are in this mess today. We need a strong lobby if this problem is to be solved – keeping quiet is not an option.

So, what is the difference between the homeowners I referred to earlier and PI? The homeowners got their premiums back with interest. Will we? I think not.

Perhaps we should make use of the Big Brother house and fill it with the regulators who have the ability to consider an alternative. Who would win or would we just throw away the key? I leave you to decide.

Robert Reid is principal of Syndaxi Financial Planning.

He can be contacted via email c/o the editor at


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