Financial Advisers Professional Indemnity Insurance
A financial adviser is not primarily defending court claims. Complaints go to the Financial Ombudsman Service, which decides what is fair and reasonable rather than applying strict law, costs the complainant nothing and can make an award where a court might not. That changes the shape of the exposure entirely.
The FCA requires professional indemnity as a condition of permission, with requirements in MIPRU covering the limit, the permitted excess and how the policy interacts with the firm's capital resources. A policy with too high an excess can leave a firm short of its capital requirement even though it is insured.
Defined benefit pension transfer advice remains an important underwriting consideration for many insurers. It has been associated with significant historic redress activity, and most policies now carry an exclusion or a heavy restriction around it whether or not the firm currently gives that advice.
We can advise FCA regulated firms and appointed representatives on professional indemnity that meets MIPRU, including where past business is under review and where the firm's permissions have changed over time.
Common claims and risk exposures
The exposures that produce claims in this trade, rather than a generic list.
Defined benefit pension transfers
The most severe exposure in the class. Redress is calculated on the cost of restoring the benefits given up, which produces very large individual awards, and reviews look back over many years of advice at once.
Unregulated investments inside pension wrappers
Advice that led to unregulated or illiquid investments held in a SIPP. When the investment fails the claim is against the adviser, because the investment itself sits outside any compensation scheme.
Suitability and the quality of the file
Whether advice was suitable is decided on the documentation. A recommendation that was entirely sensible but poorly recorded is hard to defend at the ombudsman, where the absence of evidence tends to be read against the firm.
Past business reviews
The FCA can require a firm to review historic advice. That produces many complaints at once rather than one, and aggregation under the policy then becomes the central question of whether the cover responds at all.
Protection and mortgage advice
Less severe individually but steady in volume. A policy that does not pay because a disclosure was not properly explored, or a mortgage recommendation that left the client worse off, produces complaints that are cheap to bring and expensive to defend.
The cover we arrange
We arrange professional indemnity and related insurance around the services you provide, the clients you work with and the contractual requirements you face. The appropriate cover and limits will depend on your individual activities and the terms available from insurers.
Professional indemnity meeting MIPRU
The FCA prescribes minimum limits and the maximum excess permitted without an additional capital charge. The policy has to be read against the firm's permissions rather than treated as a standard product.
- Limits set by FCA requirements
- Excess affects capital resources
- Matched to permissions held
- Ombudsman awards as well as court claims
Ombudsman complaints and defence costs
Cover for the cost of responding to complaints as well as for awards. Volume matters here, because handling complaints consumes resource long before anything is paid.
- FOS awards, which are index linked
- Complaint handling costs
- Legal representation
- Aggregation wording matters
Run off
Continuing cover after the firm ceases or gives up permissions. Complaints about advice arrive many years later, and a firm that simply stops trading without run off leaves its principals exposed.
- Continues after permissions end
- Complaints arrive years later
- Required in practice, not only prudent
- Priced as a single premium
Directors and officers
Personal liability of directors for regulatory investigations and for decisions taken in managing the firm. Relevant in a class where the regulator can act against individuals under the senior managers regime.
- Regulatory investigation costs
- Personal liability of directors
- Senior manager responsibilities
- Separate from the indemnity policy
Cyber and office cover
Client financial and health information, and the practice's own systems. A breach in this profession exposes exactly the data a fraudster wants, and notification obligations follow immediately.
- Client financial and health data
- Ransomware and restoration
- Breach notification
- Office contents and equipment
What an underwriter will ask
Having these to hand shortens the process considerably, and usually improves the terms.
- FCA permissions held, and any that have been held and given up
- Whether defined benefit transfer advice has ever been given, and over what period
- Assets under advice and the split between investment, pension, protection and mortgage business
- Whether any unregulated or illiquid investments have been recommended or introduced
- Number of advisers, their qualifications and the file checking process
- Complaints, ombudsman decisions and any past business review over the last six years
- Whether the firm is directly authorised or an appointed representative
- Capital resources position, since the policy excess interacts with it
What affects the cost of your insurance?
The main factors insurers consider when assessing the premium.
Pension transfer history
One of the main factors insurers consider, and it can affect availability as well as price. A firm that has never advised on defined benefit transfers should evidence that clearly, because the market's default assumption is expensive.
Product and investment mix
Mainstream investment and protection business is rated far below anything involving illiquid, unregulated or offshore products. What was advised historically matters as much as what is advised now.
Complaints and ombudsman record
Upheld complaints are rated heavily, partly because the ombudsman's approach makes them a better predictor of future cost than court outcomes would be.
File quality and supervision
Independent file checking, a documented suitability process and evidence of compliance oversight are the strongest arguments a firm can make at renewal, because in this class the file is the defence.
Conditions and exclusions to consider
Terms vary between insurers, so treat these as the questions to ask rather than a description of any one policy.
Defined benefit pension transfers
Widely excluded or restricted, including retrospectively for firms that no longer give the advice. It is the first thing to check on any quotation in this class, because the wording varies more than the premium does.
Unregulated collective investment schemes
Commonly excluded by name, along with specific failed investment types. An exclusion listing particular schemes is worth reading against the firm's actual advice history.
Insistent client business
Some wordings restrict cover where a client proceeded against the firm's recommendation. The documentation of an insistent client case decides whether the cover answers, which makes the process worth getting right at the time.
Fines and penalties
Regulatory fines on the firm are generally uninsurable, though the cost of responding to an investigation is usually covered, and that cost is frequently the larger of the two.
Common questions
How much professional indemnity does an FCA regulated adviser need?
The FCA sets minimum limits in MIPRU, expressed per claim and in aggregate and linked to income for some firms. Watch the excess as well as the limit, because an excess above the permitted level increases the capital your firm has to hold.
We never advised on defined benefit transfers. Why is it still excluded?
Because insurers apply the wording across the class rather than firm by firm. If your firm has genuinely never held that permission, say so explicitly with evidence at presentation, since it materially improves the terms available and sometimes whether an insurer will quote at all.
Does the policy cover Financial Ombudsman awards?
It should, and that is the point of the cover in this profession, since most matters never reach a court. Check how the policy treats complaint handling costs and how it aggregates related complaints, because a past business review produces many at once.
What happens if we stop trading?
Your liability does not stop with your permissions. Complaints about advice can arrive many years afterwards, and without run off cover there is nothing to answer them, which leaves the individuals who gave the advice personally exposed.
How do I get a quote from True Risk Solutions?
Call 01304 262880 and speak to a broker, or email info@truerisksolutions.co.uk with what you do, what you need cover for and a phone number with the best time to call, and a broker will call you back. We need a phone number to quote, because the cover and the price depend on questions that are quicker to answer on a call than by email.
Speak to a specialist who understands your industry
Tell us about your business and the work you undertake, and we will come back to you with cover options built around it. Call 01304 262880, or email us with a phone number and the best time to call and a broker will ring you back.