Only one in 10 PI insurance providers is currently willing to cover the financial advice industry, Ewan McKay, national manager, professional risk at Asset Insure, told the AIOFP national conference in Hobart on Friday.
“Those insurers that do insure planners have never made a profit out of it,” Mr McKay said. “Overall, the PI market has suffered a significant loss over time. Overwhelmingly, they would have been better off if thay had never insured planners.”
Mr McKay – who also sits on the Insurance Council of Australia PI committee – gave the example of QBE, which he said was “caned” by the collapse of Westpoint and will probably “never come back into the [financial advice] space”.
At the same time, Mr McKay conceded there is a fundamental problem in the cost and availiability of PI insurance for financial advisers, given it is a regulatory requirement.
He said that lawyers, regulators and politicians have perpetuated the “misunderstanding” that PI insurance should protect consumers, in order to “fill gaps in the market”.
The problem and reality is that Financial Planners are the softest target. I don’t see that changing and thus the problem will remain.
Lets make SOA’s 100 pages long, everyone join the FPA & stick their logo on your front door the invoice clients big bills on a 1/4ly basis…..That will solve everything.
Who amongst you would like to insure a financial planner against the many litagation potentials out there including the risk of the world, fair weather sailing client expectations and ridiculous industry compliance burdens? What fool would take that risk when this industry, is the next meal ticket for law firms future growth?
This story highlights one of the strangest anomalies in the financial services industry. A representative of a PI insurer says, “We’re only one product failure away” from exiting the market. Why is it that the collapse of a product (ie a business) is not the responsibility of the people who were running the business. Nor are the research houses who rated the business taken to task. No, apparently, it’s ALL the fault of the financial adviser who recommended the product to the client. Since when does the collapse of an investment project constitute inappropriate advice? Why is it that the financial adviser is the only participant in the process who is expected to possess a “crystal ball”? Yes, improper advice occurs and, where it does, warrants a claim against PI. But, I suspect that the presence of insurance cover is taken as suggesting that the person who should be held responsible is the one with the insurance. No wonder PI insurers can’t make a profit.
I am surprised that the PI insurers have taken so long to reach this point. The financial planning industry has a long and undistinguished history of selling unsuitable, and sometimes very damaging, products to unsuspecting investors. I recognise that many planners do genuinely try to act in the best interests of clients but they are constantly let down by a minority who don’t. Until there is tough and effective self-regulation, many clients will feel safer trusting their own research on Google. For the sake of both clients and planners, I hope somebody does something to fix this. Sadly, I am not optimistic…