I have recently completed training to become a certified money coach: it is an area we are developing to complement our traditional advice service. One of the exercises is to imagine you are floating in a small boat through time. We ask you to consider where you want to land and what you might find when you get there.
It is a revealing process but what if we were to use the technique to think about our profession?
Many column inches have been dedicated to the increasing cost of regulation and the growing demands on an advice firm’s coffers. Although we are all busy, I rarely meet a principal not worried about the future. My own recent experience with professional indemnity cover is a case in point.
We last renewed our PI cover 18 months ago. Our premium was £52,000 with an excess of £7,500. We have been with the same insurer for 19 years and have a good record, so nothing has changed. When it came to renewing recently, we were quoted a premium of £55,000 for the next 18 months but with an excess for defined benefit work of £15,000.
We took our requirement to the market to see if the quotation stood up against its competitors and were shocked to find an alternative provider wanted to charge a £100,000 premium for just 12 months of cover.
I firmly believe we are at a point of great risk for our sector, so I should not have been surprised at the level being quoted. The next year or so will be critical in terms of the number of issues brought to the attention of the Financial Ombudsman Service; that will determine just how dramatic a rise we will see in premiums when we next renew. Recent figures suggest it will see as many as 1,800 cases in 2018/19 and it is safe to assume many of those cases will be related to DB transfers.
Can any of us survive the consequences of the DB transfer bubble? If you had to shell out £100,000 for PI cover tomorrow, could you find the money and continue trading under capital adequacy rules?
And that is not the whole story. Advisers are concerned about the way the FOS reaches its decisions and about a bias in favour of potentially unsubstantiated anecdotal evidence from unhappy clients over the properly documented evidence of the adviser. We are all making huge efforts to collect and store evidence but there is little confidence in this being given proper consideration in the long run.
This is a dilemma for good advice firms committed to their clients’ best interests. On the one hand, there are good reasons for some to consider a DB transfer. On the other, a number of people are getting insufficient and ill-considered advice on them. There are still some rotten apples around.
So what should the profession do? Hunker down and refuse to advise on anything that poses a business risk? That might reduce the number of cases that reach the FOS and help keep PI premiums in check but would it be in clients’ best interests?
We must continue to allow clients to consider every suitable option. We just need clear, consistent guidance from the FCA and the FOS on what they deem to be suitable, so we can do so without the risk of it coming back to bite us later. Managing those risks will be critical to being able to afford PI cover in the future.
Carl Lamb is managing director of Almary Green