FOS award hike hits financial advisers’ insurance bills

The Personal Finance Society has beencontacted by financial advisers “across the country” whose professional indemnity premiums have jumped after the ombudsman’s award limit more than doubled. On 1 April, the Financial Conduct Authority boosted the top amount that successful claimants to the Financial Ombudsman Service could be compensated from £150,000 to £350,000. Financial advisers are required by regulation to have PI insurance in order to advise clients, but they argue that the higher PI premiums force them to raise service charges as well as to consider no longer offering defined benefit transfer advice.One adviser reported to the PFS that their PI premium had more than doubled from £5,800 last year to £14,050, with the excess on DB transfers soaring from £5,000 in 2017 to £20,000 now. A second was grappling with a PI price tag spike from £6,700 last year, to over £27,000, “despite the fact his company hadn’t advised on any British Steel pension transfers”.Another adviser said their PI insurer increased their policy limits so that cover would remain FCA-compliant but would only allow his business to carry out three more defined benefit transfer cases. “After querying the cost to lift the three-case limit, the adviser was told their premium would increase from 3 per cent to 5 per cent of turnover and excess levels would be raised from £20,000 to £25,000 on defined benefit transfer cases,” according to the PFS. The professional body quoted the adviser, who wished to be anonymous, as saying: “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.”Keith Richards, chief executive of the PFS, commented: “The raising of the FOS 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 objectives.” He cautioned: “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.” The PFS has raised these concerns with the Government. For its part, the FCA has said it may allow financial advisers extra time to make arrangements for alternative PI cover and expected PI insurers to “deal fairly” with advisers who are searching for compliant insurance. The regulator sent a letter to insurers in May attempting to reassure them that only a “small minority” of FOS cases are likely to qualify for the higher award limit. The FCA’s director of consumer and retail policy, Nisha Arora, notified in the letter that the FOS now reports all cases with a potential compensation award over the previous limit of £150,000 to the service’s legal team and senior managers.