More than half of all independent financial advisers (IFAs) are operating illegally because they cannot afford insurance to cover themselves in the event of mis-selling claims, the Office of Fair Trading revealed yesterday.
Information provided to the OFT by the Association of Independent Financial Advisers shows 22 per cent have no professional indemnity (PI) insurance at all, and 37 per cent do not have sufficient cover to meet legal requirements.
PI cover provides insurance for firms against claims for breach of their professional duty. IFAs are required by the Financial Services Authority to have it.
The pensions mis-selling scandal, which has involved billions of pounds in compensation to savers, has put IFAs into a high-risk insurance category and premiums for PI insurance have rocketed. Some firms have reported premium increases of 200 to 300 per cent, and some insurers have stopped offering PI cover to IFAs altogether. The threat of further mis-selling claims on endowment mortgages and split capital investment trusts is also making PI cover extremely difficult to find.
The Financial Services Authority has been working to alleviate some of the problems. As an emergency relief while permanent changes to the system are made, it is granting waivers on PI requirements to firms that can show they are at low risk of receiving claims and are well capitalised.Reuse content