Financial planners have reported increases of 50 per cent or more on their professional indemnity (PI) insurance premiums, leading some smaller practices to question their future commercial viability.
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”.
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