PI puts squeeze on struggling planners
Surviving as an individual financial planner is becoming tougher as advisers find themselves being squeezed by tighter margins and rapidly rising costs, such as professional indemnity (PI) insurance.
PI costs have more than doubled this year for some financial planners, and at a time when the market downturn is impacting on revenue streams, budgets are being squeezed.
Michael Badger, of Badger Financial Services, said costs were getting so high for financial planners that it was difficult to operate in the industry as a one-man band.
“As a single guy, [PI costs are] getting up towards $7,000 for me, and I don’t have huge amounts of funds under management.
“It was $3,000 a year ago,” he said. “And this is minimum level — that is the cheapest anyone will do.”
Phil Thompson, a representative of Rise Financial, said PI costs had increased by 30 to even 50 per cent in one year, along with other costs, while new business was drying up.
“This is the first year in the five years that I’ve been operating that the cash flow has not easily been there,” he said.
Thompson, who pays his bills in advance, said when it came to planning for business expenses, he was now wary of trying to build up enough cash flow to pre-pay bills.
Rick Capel, of Capel and Associates, said expenses have continued to rise in the downturn, creating a real squeeze for planners.
PI insurance was among the biggest costs for his business this year, along with rent and salaries, he said.
“We’re also not sure how badly we’re going to be impacted in the next round of PI negotiations.”
Alex Green, executive manager, professional and financial risks, at Suncorp Commercial Insurance, said rates had risen between 20 and 50 per cent this year in reaction to increased claims and people going to the Financial Ombudsman Service.
However, the level of pricing compared to where the market peaked was still low, and PI prices in the market were still fair, he said.
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