Premiums have increased “significantly” in the last five years, according to Trent Franklin, director at Enrizen Financial Group. Smaller, independent licence holders in particular have suffered increases of “at least 50 per cent” from market lows, he added.
Many boutique advisers believe they have been unfairly affected by these increases, said Wayne Roggero, Boutique Financial Planning Principals Group (BFPPG) president. Rising premiums are a “bitter pill to swallow” for advisers who haven’t made a claim, he added.
Philip Windsor, director at independent firm Chrysalis Lifestyle Planning, said his premium increased 66 per cent last year. Windsor said he had no claims, is a “very vanilla” practice from a risk perspective and has tightened risk management procedures.
Windsor said if these costs continue to increase, small operators may reconsider maintaining their independent status and move to dealer groups aligned with their philosophy. He added being independent is already a “much higher risk proposition” than being part of a larger dealer group.
“I am quietly concerned about the future in this profession, the future of the industry and where this is all going to head,” Windsor said.
“It’s like the whole industry is starting to get commoditised,” he added. “Maybe the day of the independents is drifting off in to the sunset.”
Various practitioners suggested the reason for PI insurance cost increases are due to the losses being faced by providers. Paul Girard, director and national underwriting manager of Mint Plus, said a “reasonable” premium pool is needed to write financial planners to cover likely claims.
Jamie Orchard, executive general manager of the specialist resolution group of the Financial Ombudsman Service (FOS) confirmed that there was a “spike” in complaints against financial planners post-GFC, although in the 2011/2012 financial year, there was a decrease in complaints.
The industry is 24 months off seeing a “real meaningful change” in pricing, according to Franklin. He said “we may be in a world that has a new standard when it comes to financial planners, given what insurers have seen”.
OK – sorry to have asked a dumb question.
Good you answered as it may have put a few folks off (especially us unwashed masses):-)
Cheers
Hi Steve, I dont consider Trustees of SMSF as wholesale clients. Due to the nature and the reponsibilities of the Trustees, I believe that they require full advice. Converting Trustees of SMSF’s to wholesale allows the Adviser to circumnavigate the advice process by not having to provide a Statement of Advice. I’m pretty sure ASIC feels the same way. SMSF’s with assets less than $10M are required to be engaged as retail clients.
Andrew – when you say ‘no wholesale clients’ – at what number do you use for this?
I have a number of wholesale funds (About $1m) as part of my SMSF.
Sorry I posted on another thread, should have been on this one 🙁
Andres – thanks for such openness and honesty- rare.
IMO basing a buy out based on insurance premium, is bad. It just adds another level of potentially (yes that is my view)driving planners to sell insurance. This is what the industry has been moving away form for some years now.
Much better to be based on EBIT, as with most other businesses.
Best.
As a self licensed practice our premiums actually fell last year but we are now starting the process again for this year and we expect them to rise. We have taken a lot of “risk” out of the equation. No margin lending, no gearing strategy that is above 50% of the clients LVR (including their mortgage), NO LRB within our SMSF book, no clients with investable assets under $100K, no wholesale clients, no sophisticated investors, we require two independent bodies on our Investment Committee for selection of our APL and quarterly audits of client files by an external provider.
As you can imagine we are turning more clients away than what we actually engage. No business should have to operate this way, but it all comes down to insurability. I wonder when it comes time to sell our book will the value be based on a multiple of our insurance premium or our ebit.
for “out of hand” ASIC is of little value to both advisers or clients. Relying on them for anything positive is “out there”! Large dealers “self insure”. PI premiums use ALL conflicts whether insured or not. I believe large groups are behind higher premiums whether intentional or not. I have began a forum on linkedin which MAY help. Further ASIC is so diversified perhaps a specialised division for advisers is warranted.
Forget FOFA – PI is the number one barrier to providing financial advice and services under the current regime. It’s time for ASIC to review this requirement and come up with other commercially viable consumer protection mechanisms.