Financial advisers in the UK are at risk of not being able to advise their clients due to the rise in professional indemnity (PI) cover costs, the Personal Finance Society (PFS) has found.
Insurers have already weighed in on the possible hike in premiums for advisers and industry sources have confirmed to International Adviser that IFAs are already finding it very hard to get insurance.
This is mostly due to the Financial Conduct Authority (FCA) increasing the Financial Ombudsman Service award limit to £350,000 ($442,205; €394,668), from £150,000, in April 2019.
Prices had already started to rise sharply before then following ongoing complaints around defined benefit (DB) pension transfers.
The PFS said it has received evidence showing that financial advisers are already struggling to work with their clients, as they need PI cover to advise them.
To keep up with the award increase, IFAs are considering introducing higher costs, as well as stopping their DB pension transfer advice business altogether.
For instance, one adviser told the PFS that their increased insurance policy limit would only allow them to perform three further DB transfer cases before they breached their insurance cover.
The adviser, who wished to remain anonymous, told the society: “As a small firm turning over £200,000 a year and focussed on only a few select clients, this leaves us looking to cancel our defined benefit transfer permissions and seriously concerned about being able to obtain PII cover.”
Advice even less affordable
Keith Richards, chief executive of the Personal Finance Society, said: “The raising of the Financial Ombudsman Service compensation is already having a material impact on the cost to operate for many firms, whilst reducing access and the affordability of that advice, a key conflict with the Financial Advice Market Review (FAMR) objectives.
“The increased compensation limit is either stopping or driving financial advisers to consider no longer advising on pension transfers and therefore preventing people from being able to exercise their rights under pension freedoms, which the PFS has raised with government.”
However, the FCA has told advisory firms it would consider giving them extra time to find alternative PI cover, and that it expects insurers to “deal fairly” with IFAs looking for compliant insurance.
In addition, the regulator is also set to carry out a review of FAMR this year.