PI cover no silver bullet: FPA

Jo-anne Bloch

The Government’s plan to make professional indemnity (PI) insurance mandatory for financial planners has received a lukewarm response from the Financial Planning Association of Australia (FPA).

The FPA is cautiously reviewing the Government plan, which builds on the existing requirement for FPA principal members (AFS licensees) to hold a minimum level of indemnity of $1 million per individual claim, and $2 million in aggregate.

Jo-Anne Bloch, FPA chief executive officer, said that members often increase this minimum level depending on their individual business situation.

“We support the need to ensure that all financial planners have a minimum level of cover, but we do not support any moves that will dictate terms and conditions,” she said.

The Government’s currently preferred option is for planners to hold professional indemnity insurance as part of licensing compliance, and the FPA agrees this is the most appropriate course of action, “but would also like to see inclusion of self insurance, for example”.

“We need to avoid measures that will increase premiums, cost of implementation and compliance,” Bloch said.

Concerns were also held over the impact such a prescriptive approach would have on small licensees, the definition of ‘adequate cover’, co-ordination of the insurance requirement with maximum compensation payable under the Financial Industry Complaints Service and the danger of some licensees losing their licence unless they are able to comply with new requirements within the specified timeframe.

While noting the importance of PI cover, Bloch said: “Let’s be very clear, however, that having appropriate levels of PI cover will not on its own avoid a Westpoint from occurring again, nor will it guarantee consumer protection”.

The FPA is currently consulting with members to meet the November 30 submission deadline.