Financial advisers are trading without cover

FINANCIAL advisers regulated by Fimbra are being allowed to trade without indemnity insurance because they cannot find cover for their businesses as a result of the pension transfer scandal.

The regulator said yesterday that its decision was due to 'exceptional' circumstances and investors were fully covered in the event of any compensation claim.

Godfrey Jillings, chief executive at Fimbra, said: 'All advisers must have indemnity cover. But because of what is happening at the moment that requirement is being temporarily waived until the situation can be resolved. Financial advisers remain fully liable for any advice that they give to their clients.'

A report last month by the Securities and Investments Board showed that up to 90 per cent of people who transferred out of their occupational schemes into personal ones may have suffered bad advice. The SIB has set up a committee to come up with proposals on compensation by the summer.

Insurers dealing with independent financial advisers are frightened by the potential costs of any compensation bill. At present, any broker wanting indemnity insurance business from IFAs must agree to special terms set by Fimbra, which include providing cover for all their activities, including pension transfers.

The insurance market's refusal to consider pension advice as normal business has meant advisers cannot get any cover at all. Advisers must prove they have been unable to get cover from a number of sources before a temporary waiver is given.

Geoffrey Pointon, chairman of the PYV Group, a Lloyd's broker specialising in indemnity cover, said yesterday: 'Most brokers are generalists. They have a reasonable idea of what is happening but don't know all the details. They come out when the risk is judged to be acceptable.'

Mr Pointon said advisers faced higher premiums and potential exclusion from being allowed to give pension transfer advice. Should claims be made against IFAs by clients for pensions advice in previous years, that would not be covered and would have to met out of their assets.