Associations take differing views on PI cover

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Two recent court cases against advisers doesn’t appear to be encouraging advisers to seek professional indemnity (PI) cover.

Tuesday, January 3rd 2012, 9:03AM 2 Comments

by Benn Bathgate

Currently there is no regulatory requirement for either AFAs or RFAs to have PI cover.

Lumley professional liability underwriting manager Blair Dyers says that the company hadn’t seen any increase in advisers seeking PI cover over recently, despite the Church and Hartles cases.

However, he did say he had noticed an increase in advisers with PI choosing to purchase a higher limit of indemnity. Dyer says that in the wake of new regulations, there is a greater need for advisers to have PI cover.

“The dispute resolution provisions do remove many barriers for bringing complaints against financial advisers,” he said.

He also warned advisers it was important to look beyond investment advice for potential liabilities.

“It can be easy to see the risks associated with advice around investments and to ignore other exposures associated with their business,” he said.

“We would urge advisers to consider carefully their clients financial position when recommending and arranging insurance solutions, especially those insurances designed to cover illnesses, disabilities and other traumas.”

Neither the Institute of Financial Advisers (IFA) nor the Professional Advisers Association (PAA) require members to have cover, their respective chief executives have differing views on its worth.

PAA chief Edward Richards said it “strongly encourages” their members to have PI cover, “regardless of the regulatory and market environment.”

For IFA chief Peter Lee however, PI can be a distraction from sound business practices.

“You can go overboard relying on PI cover when in fact you should be focusing on the front end of it,” he said.

“Our view is really that advisers with good practices, good systems and processes, are actually much less likely to fall foul of the sorts of things PI will cover you for.”

Benn Bathgate is a business reporter for ASSET and Good Returns, email story ideas to benn@goodreturns.co.nz

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