Fee-based model pushes up PI costs

Advisers using a fee-for-service model of financial planning remuneration could face increased professional indemnity (PI) insurance burdens, according to prominent planning industry insurance broker Brian King.

King, who is managing director of Crown Insurance, says underwriters perceive a different level of risk between an individual agent being paid a commission and a planner charging a fee-for-service.

“Underwriters appear to be much more jittery about fee income than those advisers who get commission income,” King says.

King says although this has been the case for some time, the Australian Consumers’ Association andAustralian Securities and Investments Commission’s survey, which was “just another nail in the coffin” for underwriters on financial planners, seems to have made fee-for-service more of an issue for them.

He says the reason appears to be because those on commission-based income predominantly use the recommended lists of their principals who are responsible for their actions.

King says the risk exposure from an underwriter’s perspective appears to be much more on the dealer, as opposed to fee-for-service income which is more advice based.

TheFinancial Planning Association(FPA) disagrees with this position on fee-for-service and its affect on PI, saying the use of fee-for-service modelling does not make a difference to premiums.