GSA manager professional risks, Ryan Neary, told ifa that taking into account current ASIC PI rules and the extent to which the insurance market for advisers had shrunk in the last few years, insurers did not have enough capital available to service every adviser in the industry as individuals.
“If everyone had to get their own licence and apply for their own PI insurance, what it means is insurers need to put out a lot more capacity,” Mr Neary said.
“If you have a dealer group with 70 reps, that group has a limit of $10-20 million that is shared amongst that network. The minimum limit any planner has to purchase is $2 million, so if you use that one dealer group example they will have to put out $140 million, whereas at the moment they’re putting out $10 million.
“To be honest, the current market is not big enough for that.”
Mr Neary said even if PI limits were changed, which was unlikely given ASIC’s consumer protection focus, the costs to attain insurance were likely to go up given the extra compliance and training procedures advisers would need to implement on an individual basis.
“I can’t talk on behalf of ASIC but I’d be surprised if they reduced [the limit] – the minimum requirements they have set is to ensure retail investors [are] protected to a certain level, so it’s hard to see them amending that,” he said.
“The other thing is that dealer groups and large licence holders spend a lot of money in terms of compliance systems, CPD and policies and procedures, and risk management because they get fees from their reps to allow them to do that. As a self-licensed planner, the levels of compliance and ongoing training and systems that sit behind the advice they’re giving could potentially be at a lower level due to them not having the financial resources to replicate, this creates risk for the insurers.”
Mr Neary said that a single PI scheme for planners – similar to the LawCover scheme for lawyers – could be workable, but would potentially be more expensive and complex to implement given the higher indemnity costs in the advice sector.
“While lawyers do get claims, the frequency of claims they have is not what the financial planner and investment sector has at the moment,” he said.
“The matters that go to external dispute resolution are the ones that cause issues for insurers, because they are paying defence costs for all those matters.
“It could definitely work, it’s something to be looked at, but it would take a lot of work to get that structure in place.”
The FPA is NOT proposing all advisers become self licensed under the current system. They are NOT proposing ASIC has a continued role in financial adviser licensing. They are NOT proposing the current PI environment continue unchanged. All these things are clearly broken and need to be replaced. The FPA is proposing a whole new system of individual adviser registration and regulation outside of the current AFSL and ASIC framework, along with an associated restructuring of PI. They are proposing a model very similar to that used by other professions.
It is disappointing that some dealer groups and service providers who benefit from the current broken system are trying to cling to the status quo through misrepresentations and scare campaigns.
We already have individual registration under ASIC. I have a ASIC number and a TPB number. The FPA does NOT represent me and I don’t want to be forced into compulsory membership of an unethical body that did a back room deal with CBA Financial Planning for compulsory membership. I would not want to be forced in joining a body like the FPA given the appearance of the CEO at the Royal Commission.
Yet another misrepresentation of the FPA proposal! They are NOT proposing compulsory membership of the FPA. They are proposing the new financial adviser disciplinary body (which was recommended by Hayne and the government has committed to) take over all adviser registration from ASIC, TPB, licensees etc.
If the FPA said they were in favour of world peace would you be opposed to it because you’re not an FPA member and disagree with some of the tings they did in the past?
Yes, when it’s the same CEO that appeared at the Royal Commission and the same board that did the deal with the CBA. New board and new CEO, happy to be open, but given current leadership the only thing the FPA is advancing is their own self interest.
Insurance products and insurers would certainly adjust their benefit design or lose premiums. In fact the first insurer who does so will win market share. This system being proposed is similar to the UK Adviser Licensing and is certainly workable (and PI insurers will evolve) and able to be implemented. The broker is stating a solution isn’t presently available, this is no surprise as the framework isn’t presently law.
Good points to look at. The partnership model could fix that and obstetricians and other doctors have high PI premiums as well. It is workable.
As a self licensed adviser I cannot possibly support the FPA any longer. It’s much easier for a large institution such as NAB or AMP to secure PI cover. It’s very obvious to see where the FPA sits on this issue given the current state of PI Cover in Australia. They have clearly deliberately sided with large institutions, or it’s member base reflects advisers who all work for a large licensee.
The FPA proposes a model that effectively transfers power away from large licensees to individual advisers, and you say you can’t support it because the FPA has sided with the large licensees!! Time to retire Old Bob. With reasoning skills like that you are a danger to your clients.
If you’re going to that level I say time for FPA scum to move out. Obvious the un professional partner program is impacting your reasoning.