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Taking a slice of the mutual PI

The FSA looks set to formalise its proposals for a mutual PI scheme for the IFA industry.

If such a scheme gets off the ground, the regulator will have proved itself capable of the management of at least one crisis and will receive widespread acclaim from advisers.

The flexibility demonstrated by the regulator in examining IFAs on a case-by-case basis is also to be welcomed although this is cold comfort to smaller IFAs, many of which have had few or even no review claims, but have not managed to obtain cover nor get a waiver.

It is also clear that the regulator&#39s room for manoeuvre on the PI issue may be restricted by the increasingly hostile coverage from national newspapers warning investors that many IFAs do not have PI cover.

The FSA would argue that it has only extended dispensation to firms which it is confident have the ability and the balance sheet to effectively self insure.

But in such a hostile investment climate, it is difficult to see the ad hoc approach being acceptable for any more than the next 12 months.

It is imperative that any mutual scheme moves quickly from the drawing board and into existence so that good IFAs are not forced out of business.

Money Marketing is concerned that such a scheme will require extensive financial support from product providers which are under financial pressure but the providers should take into account that IFAs will remain a significant channel and to neglect it does not make business sense.

IFAs may have to accept a proportion of the costs, which could be the harsh reality of creating a sustainable PI system.

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