The recent Financial Ombudsman Service (FOS) compensation limit hike will see advisers pulling out of the DB transfer market when PI insurance becomes too expensive, the PFS has warned.
On 1 April, the Financial Conduct Authority (FCA) increased the ombudsman’s award limit from £150,000 to £350,000.
Since the increase, the Personal Finance Society (PFS) has been contacted by financial advisers across the country who have experienced significant hikes in their professional indemnity (PI) insurance premiums.
One adviser told the PFS their PI insurance changed their policy limits so that cover would remain FCA-compliant, but would only allow their business to carry out three more defined benefit (DB) transfer cases.
After querying the cost to lift this three-case limit, the adviser was told their premium would increase from 3% to 5% of turnover and excess levels would be raised from £20,000 to £25,000 on DB transfer cases.
Elsewhere, an adviser saw their PI premium increase from £5,800 last year to £14,050 this year. Additionally, the excess on DB transfer advice increased from £5,000 in 2017 to £20,000 now.
A third adviser, meanwhile, told the body that their PI costs had increased from £6,700 last year to more than £27,000 for 2019 – an increase of more than 300%.
‘Conflict with FAMR’
PFS chief executive Keith Richards said: “The raising of the FOS compensation limit is already having a material impact on the cost to operate for many firms while reducing access and the affordability of that advice – a key conflict with the Financial Advice Market Review objectives.
“The increased compensation limit is either stopping or driving financial advisers to consider no longer advising on pension transfers and therefore preventing people from being able to exercise their rights under pension freedoms, which the PFS has raised with government.”