The Boutique Financial Planning Principals Group (BFPPG) has called on the Australian Securities and Investments Commission (ASIC) to provide solutions to avert a looming critical shortage in available professional indemnity (PI) cover for small dealer groups.
BFPPG executive member Bruce Baker said the regulator needed to “act now to provide solutions or show flexibility over this problem, before independent small dealers cease to exist”.
In a letter to ASIC senior executive leader Deborah Koromilas, he said without action from the regulator, the scarcity of PI cover would potentially threaten the survival of small dealer groups over the next few years.
“If PI cover ceases to be reasonably accessible, what other compensation arrangements will ASIC allow to enable the small, independently-owned dealer segment to continue to exist?” he said.
Baker, also principal of Brisbane-based Puzzle Financial Advice, said the regulator had a responsibility to act, considering PI cover is the means by which small Australian Financial Services (AFS) licensees comply with Financial Services Reform compensation requirements.
He said the “problem is that the current financial crisis, the share market crash and falls in property prices have a high probability of causing a severe shortage of capacity among PI insurers”.
“It is not because small AFS licensees are bad risks but because a dramatic fall in reserves at insurance companies will reduce the capacity for insurers to provide insurance across the board.”
Baker predicted the availability of PI cover would become much scarcer than in 2002, which saw PI cover became hard to source as a result of the dot-com crash.
“The financial crisis and asset price losses over the last 12 months are far more extreme than in 2002 and might get far worse,” he said.
In Koromilas’ response to Baker’s letter, which he also distributed to various advice sector personnel, she said the issue is an “important one, which ASIC has more generally been looking at”.
“Your comments, however, are very relevant to the issue and will assist us greatly when considering the issues, and we will be in touch with your organisation to discuss them further in the near future.”
