Marshall said some licensees are misrepresenting what are effectively internal cost-recovery fees by labelling them as PI run-off premiums — despite no genuine insurance cost being triggered by an adviser’s departure.
“When licensees label what is essentially a commercial recovery fee as run-off cover, it raises questions around honesty and transparency,” Marshall said. “Advisers are expected to be open and upfront with clients, the same principle should apply to licensees.”
He argued that PI policies for AFSLs typically remain active and unchanged when an adviser leaves, meaning no additional premium is generated solely because of an exit. As a result, he said, charging an adviser a run-off cover fee cannot be justified.
The statement noted that some licensees attempt to defend the practice by claiming PI premiums remain static while adviser revenue falls. Marshall said this reasoning “goes around in circles”.
“If a licensee replaces the lost revenue when an adviser moves on, as most do, their overall PI exposure remains covered and generally reduces over time,” he said.
“The issue arises when they can’t replace the revenue and therefore feel the premium impact. But that’s a business issue, not an insurance issue, and exiting advisers shouldn’t have to wear it.”
Marshall highlighted that PI insurance operates on a claims-made basis — meaning cover applies when a claim is made, not when the advice was given — and said the requirement for AFSLs to maintain cover for former representatives does not automatically create new premium costs.
He acknowledged that targeted cost recovery can be appropriate in specific cases.
“Where there’s an unresolved complaint or a genuine increase in risk, recovering specific costs such as an excess or additional premium is fair,” he said.
“But where an adviser simply transitions elsewhere, calling it run-off cover misrepresents what’s actually happening.”
The AMAFA managing director also pointed out that advisers have virtually no way to obtain their own standalone PI run-off protection.
“Getting standalone PI run-off cover is almost impossible for individual financial advisers,” he said.
The organisation has called for clearer, more transparent exit fee structures across the profession.
“If an adviser chooses to leave a licensee, we believe that decision should be respected, and their exit made as smooth as possible,” Marshall explained.
“Where any costs are involved, they should be transparent and clearly explained. It’s about being open, fair and proportionate – and doing the right thing by advisers.”
