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Advisers fear spiralling PI costs after shock FOS claim ruling

by Daniel Grote on Jan 07, 2013 at 07:55

Advisers fear spiralling PI costs after shock FOS claim ruling

Advisers fear professional indemnity (PI) cover costs could jump yet higher after a landmark ruling allowing investors who accepted the maximum award from the Financial Ombudsman Service (FOS) to pursue their IFA for more money.

High Court judge Ross Cranston has ruled that investors Barry and Julie Clark are free to claim further damages from In Focus Asset Management & Tax Solutions, despite the adviser firm having paid £100,000 compensation following a FOS judgment. That payout was the maximum the FOS was able to award at the time, although the limit on FOS claims has since risen to £150,000. The pair have alleged they incurred losses of £500,000 after being mis-sold endowment policy plans following the sale of their business and premises.

The ruling clashes with a court judgment made two years ago, that accepting a FOS award ruled out court action over the same complaint.

Alan Smith (pictured), chief executive of London-based Capital Asset Management, said the judgment set a ‘very dangerous precedent’. He argued that complainants who may have shied away from the courts would now find it easier to launch claims if they were first to go to the FOS, leading to greater PI costs for advisers. ‘The risks [of IFA businesses] will be exponentially greater to insurers,’ he said.

Lee Robertson, chief executive of London-based Investment Quorum, agreed the ruling left advisers in a vulnerable position. ‘It adds to the burden of what is becoming an almost impossible job,’ he said.

Tim Simmonds, head of financial services at law firm Osborne Clarke, added the judgment had ‘grave ramifications’ for the FOS, given the uncertainty over future legal action from investors who receive an Ombudsman award. ‘This uncertainty raises major policy questions about the role of the Ombudsman and its ability to provide swift and binding decisions,’ he said. 

27 comments so far. Why not have your say?


Jan 07, 2013 at 08:28

Said it before many times and I will say it again - the "advisor market killer" is not TCF / RDR and fees / the FSA ... blah blah blah ... it is PII - nothing else matters if YOU can't get it ... if you can ... then afford it to pay the (what are all ready now) ludicrous PII premiums !

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Jan 07, 2013 at 08:49

It's been a war of attrition against IFAs for a long time. The banks continue imposing targets on their staff and carry on as before. lt is not a fair fight.

l recommend everyone to try and read the January 2013 "Which" report on this, and it should be mandatory reading for all FSA staff, . IFAs are at a complete disadvantage now with escalating rates for PI cover being another straw on the IFA camel's back.

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Mitul Patel

Jan 07, 2013 at 08:54

we will all be working for the money advice centre

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Mad Eyes

Jan 07, 2013 at 08:57

crazy market and massive liabilities so this is no surprise. I fear many companies may not be even offered terms

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John Brady

Jan 07, 2013 at 09:08

It wont even be that NearlynolongeranIFA.

The "adviser market killer" is the fact that advisers dont want to be part of this hideous disgusting disgraceful corrupt joke of a business anymore.

Those that haven't left already haven't left because they dont know what else to do with their lives yet and partly because they are stubbornly digging their heels in with a "They're not going to beat me" attitude.

But believe me regardless of how many have left the industry or plan to within the next year or two 99% of advisers are looking at doing something else. The other 1% are trapped because they own the businesses.

The fact that there isn't an adviser anywhere that actually enjoys working in this foul business anymore means that they are already beaten.

A business where success and failure cannot be measured, cannot be predicted and cannot be used as a past reference combined with a general public who dont know, dont care and dont give a damn, combined with LIARS CHEATS AND CRIMINALS in certain positions within it, combined with Government and Regulatory interference and new crackpot initiatives actually STEALS money from peoples pockets, while they in turn steal a living in an industry that is carrying them through their entire life at everybody else's expense and inconvenience.

The ONLY honourable people in this joke of a business are the people who they are trying to hound out of it and replace with compulsory products which the public will have no choice but to pay into.

Compulsory Work Place Pensions........Tick, done already.

Compulsory Life Assurance to protect debt...........Coming Soon, you'll see

Compulsory Life Assurance to protect Lives.........Coming soon, you'll see

Compulsory Life Assurance on conception of children........Coming soon, you'll see.

Compulsory Income Protection to eliminate the need for state benefit.............Coming soon you'll see

Compulsory , Accident, Sickness, Unemployment and Critical Illness to again eliminate the need for state benefits.............Coming soon you'll see.

And then the best one of all...............Compulsory PPI whenever a loan is arranged.

I believe this i the way they will get around the lack of sales activity when the last IFA has finally told them to shove it.

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Graeme Ferguson

Jan 07, 2013 at 09:10

As many i don't know the full disclosure of this case, though if the adviser deliberately miss informed the client and they lost £500k, then £100k doesn't really cut it... however saying that if they accepted a full and final settlement then they should not have the right to make a secondary claim!

Sadly if you do not treat every case as a potential claim then you will not survive!

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Mitul Patel

Jan 07, 2013 at 09:27

John Brady - spot on

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Jan 07, 2013 at 09:34

@ Graeme F - always been the case

@ John B - I agree to some extent with your sentiments and it will be interesting to see the advisor fall-out in 2013/14 and beyond (as you say, when, reality bites).

... my statement was premised on the idea that there would be a potentially "willing" advisor market left - as in, it would not matter anyway if PII was unavailable as the whole "advised" system simply falls down without it.

As a "starter for 10" for new jobs, my alternative career choice would be Postman - you get up / you walk around / you post some letters (some through the right door) / and you go home.

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alan from perth

Jan 07, 2013 at 09:38

Does this not mean that

A) the burden of proof will now lie with the claimant

B) The Ifa may actually win the case and have the previous decision thrown out (or is this still binding)

c) Will the claimant now actually have to pay his fees to try and win a case

d) Can the IFA take the claimant to court ie reverse the FOS decision

I would welcome some clrafication on this

Finally EVERY piece of news in 2013 has been negative starting with a kick in the >>> with sants getting his knighthoois there anything good at all?????????????????

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Marc Egerton

Jan 07, 2013 at 09:53

For those that do decide to leave the industry (or have already left), one possible alternative activity is to become an expert witness in financial services. (Continuing IFAs are not excluded). It is only worth considering for genuinely good, articulate and experienced IFAs (or ex IFAs) as their level of knowledge and opinions will be severely tested, possibly in court but certainly by their instructing lawyers. But there are very few good expert witnesses in this field, and the demand for this type of expertise is increasing. The work can be very lucrative. Oh!, and the PII costs are very reasonable - mine costs about £250pa for £5m cover. I am happy to provide more information, either through this thread or privately at marcegerton@btinternet.com, I am an ex IFA and ex compliance consultant (about six years ago) and have been writing expert witness reports for about 16 years.

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Bob Donaldson

Jan 07, 2013 at 10:01

Whilst the banks may be responsible for a substantial amount of complaints. in general I believe they fall in to the major problem of miselling, ie. recommending a product/investment which is unsuitable.

In the case of advisors, too many of them try to be too clever for their own good and this particular case may well fall into that very category although I do not have full details of the case.

Instead of recommending very straight forward investments they often like to show how clever they are and tax planning presents those opportunities although many times it is on the fringes when it comes to the underlying investments.

When dealing with such clients often it is large sums of money involved and therefore if it goes wrong they are far more likely to make a claim. In addition to this the rule of diversification often goes out of the window.

When you look at some of the cases brought to book last year you can judge for yourselves.

We will all fall over at some time with an investment that appears to be brilliant but doesn't do what it says on the tin, but then clients can be forgiving if the basic rules of diversification and transparency have been followed. They do understand that you will not get it right all of the time, neither do they if they do it themselves.

Whilst some who read this might suggest that I am not doing my job properly by recommending such 'walk on the wild side type investments' I am because I am protecting my business so that I will still be here for the bulk of my clients and not sacrifice it for someone who wants the latest hairbrained scheme.

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Julian Stevens

Jan 07, 2013 at 10:07

I wonder if PI insurers will now consider capping cover in line with FOS awards. In respect of claims for damages over and above, you'll be on your own.

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Paul Barnard

Jan 07, 2013 at 10:17

Surely, running any business involves quantifying risks. Speculating in TEPS carries an unquantifiable risk both to the client and the adviser.

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Morley Boy

Jan 07, 2013 at 11:08

@ John Brady - Totally agree. Awful business to work in.

Time to join a network or sell up.

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Julian Stevens

Jan 07, 2013 at 11:22

I don't know how bad PII premiums and policy conditions have become out there in the directly authorised market, but I think you'd find little comfort on that front by joining a network.

We've recently received renewal terms from our network and, without disclosing any confidential details, I have to say they don't to me look exactly brilliant. Then again, they may well be better than what we would be able to obtain if we were trying to secure terms on an individual basis.

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Simon Kershaw

Jan 07, 2013 at 11:48

@ Julian

Directly authorised firm, 3 RIs, no claims or complaints - £2900pa, £5000 excess.

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Christopher Petrie

Jan 07, 2013 at 12:19

Our just came in at £2,300 pa. including IP Tax. Just 1 RI, no complaints or claims, though probably higher-than-average turnover for 1 RI.

It was an increase on last year, but hardly anything to sell the business or join a Network about.

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Julian Stevens

Jan 07, 2013 at 12:34

Our PII premium for the year is £3,750 and I'm the only RI here (with no claim ever having been made and hardly any complaints, only one, over 10 years ago, ever upheld).

Unless certain insurers out there are providing cover that our network considers to be sub-standard by comparison with that which they've secured for us, we seem to be paying rather OTT.

I've asked for them to comment.

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alan from perth

Jan 07, 2013 at 12:46

have you tried windsor

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Julian Stevens

Jan 07, 2013 at 13:06

We aren't given the option. The network arranges our PII for us and that's it (though we have in the past been insured with Windsor).

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alan from perth

Jan 07, 2013 at 13:26

nae luck, we are ion our own and its £1825 per year, touch wood-no complaints and £5k excess, less for mortgages etc

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Gary Bond

Jan 07, 2013 at 14:35

Gents.. I don't think you are paying too much .. I am a 1 RI sole trader with no complaints and mine is £10,600 p.a. ( £5k excess ) so relax .. Its all relative to T/O so the less business you write the less you pay ... Maybe I should write less !!! ...

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Christopher Petrie

Jan 07, 2013 at 17:02

@ Gary - that's a hell of a big turnover you're doing on your todd there, at that premium!

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I'm an IFA - get me out of here

Jan 08, 2013 at 12:35

John Brady - I couldnt have written that better myself. Sadly I am an business owner that is trapped in this joke of an industry. I was around in 1988 when the Financial Services Act became law and it has been a slippery slope since.

If I was a PI insurer I too would be reluctant to offer terms to an adviser firm, when the liabilites can be changed at any time, either because of FSA retrospective action, or a decision such as the High Court case.

To those feeling bullish about the industry, good luck, you will need it.

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Terence O'Halloran

Jan 11, 2013 at 17:29


The PI Insurers should withdraw from the market IN ALL AREAS OF PROFESSIONAL INDEMNITY until the government set up a regulator that understands the principles of insurance and employs professionally qualified and experienced management and operational staff..

Insurance fuds ARE NOT social funds to provide regulators with cudos and lawyers with fees.

Pull out! Tell 'em to P**s Off.

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david mann

Jan 11, 2013 at 21:14

Great advice Terrence - very constructive.

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alec hargreaves

Jan 14, 2013 at 10:35

If , instead of writing on this blog all comments were directed at constituent MP's AND the Treasury Select Committee, those who might be able to change matters possibly could take note. In particular Governments only really take notice if they fear loss of votes at election time and if everybody affected by these idiots at the FSA were to regularly make their view known there just might be remedial action taken. Its about time the Government realised that it is the \Government who will be held responsible for the destruction of this industry and the many tens of thousands of jobs that will be lost as they cannot continue to hide behind the FSA.

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