Advice liability 'needs to be considered in IFA transactions' - Professional Indemnity (PI) insurance for IFAs

21/07/2009

Written by Neil Pointon

Those independent financial advisers (IFAs) which are looking to sell their business are being urged to ensure they take the time to deal with liability for past advice properly, the IFA Defence Union (IFADU) warns.

In a handbook complied by the union, advisers are warned that all too often scant consideration is given on how to deal with any past advice liability or potential clawback from the purchased business, the FT Adviser reveals.

However, a failure to consider this could result in claims being made against those without adequate PI cover, leaving IFAs unprotected and the public without a means of redress.

"The past business mix creates long-term potential liabilities for claims that the practice mis-sold policies of insurance and investments," the IFADU points out.

Continuing, the union states that the value of any deal will decline as expected income is increasingly taken up by the cost of dealing with complaints and claims for lost earnings.

And with the retail distribution review (RDR) currently stating that a 15-year long-stop on PI claims would not be introduced, the IFADU claims "a successor practice would be foolish not to review or take precautions against future liabilities".

Neil Pointon, CEO at specialist PI broker PYV, advises: "Due to the 'claims-made' nature of PI policies, it is highly important that either the buyer or seller of an IFA practice ensures that cover is continuously in place. Where an IFA is thinking about ceasing to trade, they should always ensure that they and their clients benefit either from 'run-off' cover being in force or that any purchaser of their business has extended their own PI arrangements too provide the necessary protection."

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PYV are one of the UK's leading providers of professional indemnity insurance. This news article has been produced by Adfero in collaboration with PYV and its unauthorised use is not permitted.

(c) 2009 Adfero Ltd.

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