Professional Indemnity Insurance: A guide

Professional indemnity insurance is a vital component forIFA’s and Wealth Management Firms to protect them if their advice leads tounintended consequences. With all the options out there, it is important toknow what to look out for to get the best level of cover.

Buying a PII Policy

When looking to buy professional indemnity insurance it’sreally important to make sure the cover is at a compliant level. The FCA willset guidelines on the limit of indemnity and maximum excess you can carry so itis important to check this. 

Although there are many brokers that can arrangethis for you, the number of insurers to write this cover is limited, so speakto a broker with access to the right insurers. Having more than one broker approachthe market on your behalf can lead to insurers declining to quote, so make sureyou’ve chosen the right broker to represent you. It could be useful toundertake a broker tender process to choose your preferred broker before askingthem to go to market.

Likewise, it is also useful to select an insurer that has ahistory in the IFA market and not a short term vision.  If the insurer decides to leave the market atany moment you could be in a difficult position looking for alternatives. 

Remember, the cheapest is not always the best option. Having chosen a reputableinsurer and broker, do take the time to understand the policy wording,endorsements and exclusions as different insurers offer different terms andconditions. It can also help to stick with the same insurer for a few years tobuild a history with them over time. 

Professional indemnity insurance is on aclaims made basis so be aware that if you’re changing insurers, you shouldnotify all possible matters that may give rise to a claim to your expiringinsurer before you make the switch.

Risk Management

Alongside buying the right professional indemnity insurancepolicy, there are also some useful risk management steps to keep in mind. Knowingyour products is obviously the first place to start but on top of this, undertakingdue diligence on products and services is also necessary, making sure recordsof such work are kept as evidence. 

Ensuring marketing literature is accurateand not misleading is equally important. It is also recommended to stay clearof aggressive tax avoidance advice. An element of fact finding and clientprofiling can help ensure your clients are suitable for the products you aretalking to them about, not all clients will be suitable for every product. Doalso take in to consideration if your client will incur any financial hardshipas a result of the advice you have given.

Having more than one employee review each file is anotherexample of good practice alongside retaining meeting and telephone notes asevidence of what has been discussed with the clients. Sending copies to clientscan be useful too. Make sure your engagement documentation with the client isclear in terms of advice you are providing and the risks involved. 

Retainingcopies on file as evidence of this would again be recommended. It can be usefulto get your client to put in their own words that they’re happy with the risksinvolved and to proceed with the investment or whatever else you’re talking tothem about.

Retaining evidence is certainly the key.  If anallegation is made against you in the future and you can not support the adviceyou’ve given with written evidence then the likelihood is that a successfulclaim will be made against you.