Independent financial advisers (IFAs)are selling their businesses because they cannot comply with FSA mandatory professional indemnity (PI)insurance requirements. Acquisitions Mergers and Sales director Phil Calvert said there had been a sharp increase in the number of IFAs looking to sell.
Meanwhile, Association of Independent Financial Advisors (AIFA)policy and technical services director Fay Goddard said IFAs faced FSA censure because they did not have enough cover to comply with the authority's requirements. "We don't want to see regulatory action against quality firms for not having cover that is not available to them," she said.
It is understood that IFAs are facing increases of up to £70, 000 in their premium rates. PI insurers said scandals over pensions mis-selling and endowments, and later split capital investment trusts, justified IFAs' reputation as risky business that made underwriters jittery.
The FSA sets strict requirements for IFAs'PI cover, including specific policy wordings, excess and indemnity levels.It adopted the requirements from its predecessor the Personal Investment Authority and is due to review them in 2004. This week AIFA surveyed members on their insurance experiences over the past five years. The association intends to send the survey results to the FSA to alert it to the industry's hardship in time for its traditional 1 November renewal date.
Calvert said the lack of insurance had added to the pressure of the Sandler report. "The small people don't like what they've seen in the envelope from their insurer, decide they've had enough and phone us," he said. Goddard said the number of insurers covering IFAs' PI had steadily shrunk.
"There's only a handful left -St Paul International and Trenwick are two key ones and Chubb does an exclusive deal with one PI broker, " she said." There are no competitive forces in the market so it's extremely difficult to change insurers."
She said the AIFA held a quarterly forum for IFAs, the FSA, insurers and brokers and intended to lobby heavily over the 2004 regulatory review. St Paul PI product manager Jon Davies said IFAs needed to face harsh reality."
If you're in the business of giving professional advice, then you're under closer scrutiny than ever before," he said.
"Clients who believe that advice you've given them is at all less than perfect will not hesitate to sue."