Will the cost of PI drive advice firm consolidation?

professional indemnity Ballast Countplus matthew rowe

15 October 2020
| By Mike |
image
image
expand image

The West Australian financial planning firm which had its Australian Financial Services License (AFSL) suspended for at least 10 weeks to allow it to secure professional indemnity (PI) insurance may represent the tip of the iceberg.

Financial planning group executives have told Money Management that PI insurance has become increasingly difficult to secure and that the West Australian firm, Ballast Financial Management, will probably not be the last to come to the notice of the regulator.

Importantly, in the context of obtaining PI cover, a director and responsible manager of Ballast, Wayne Blazejczyk, was in January banned by the Australian Securities and Investments Commission from providing financial services for five years for failing to meet best interests obligations.

The senior planning executives said obtaining PI cover was difficult but would have proved really difficult for any business regarded as having compliance issues.

“The PI market is the hardest I have ever seen, insurers are withdrawing from the market and the new underwriting requirements are extensive for this cycle,” the chief executive of CountPlus, Matthew Rowe said.

“It is all about the quality of your risk management processes, access to a balance sheet and your capital keel, systems and real time data driven supervision and monitoring,” he said. “You can’t just say you have these things, you need to prove that you have them and also that you are taking a zero tolerance approach to non-compliance.”

“The days of a tick a box renewal applications are over, insurers are rationing capital and are being selective in who they back,” Rowe said.

Other planning group executives agreed with Rowe that the already tight PI market had proved even tighter over the past 18 months, with it now not being unusual for firms to pay as much as two or three times turnover to secure PI cover.

“Some of the luckier ones with good compliance records may be paying 1.8 to 2.5 times turnover, but they are the exception rather than the rule,” he said.

Rowe said he was aware of a lot of anecdotal discussions around small and mid-sized AFSL’s not being renewed and attributed this to the simple fact there wasn’t the capital in the insurance pool willing to be deployed to underwrite financial advice risk for under-resourced players.

“We have renewed our PI with a reduced deductible and guaranteed rates for the next 18 months that give certainty to Count Financial advisers, I suspect we will be one of the few players that will achieve this outcome,” he said.

Read more about:

AUTHOR

Recommended for you

sub-bgsidebar subscription

Never miss the latest news and developments in wealth management industry

MARKET INSIGHTS

Adnan

It is fascinating to see that this year - 2 funds (Mine Super & CFS FirstChoice Employer Super) which failed APRA Perfor...

30 minutes 35 seconds ago
Mitch VB

Thanks for providing us even more work in educating clients on the growth/ defensive splits of all these "top" performer...

48 minutes 19 seconds ago
JohnM

Why would you do that for? It would be a case of the same circus, different clowns....

7 hours ago

Insignia Financial has unveiled a new operating model and executive team, including a new head of advice, while three senior executives are set to depart the licensee....

1 week ago

ASIC has obtained interim orders from the Federal Court to freeze the assets of a registered managed fund and prevent its former director from leaving Australia. ...

4 weeks ago

The $280 billion Australian Retirement Trust is the first superannuation fund off the block to report its performance for the 2023-24 financial year....

2 weeks 3 days ago

TOP PERFORMING FUNDS

ACS FIXED INT - AUSTRALIA/GLOBAL BOND