Concerns over PI 'distortions'
The rules being applied by professional indemnity (PI) insurers may be having more impact on the asset allocations being recommended by financial planners than approved product lists or other factors.
That is the analysis of a number of planners who are concerned that the limited number of companies prepared to offer PI, and the conditions they are imposing on the provision of that insurance, risk some planners not being able to act in client's best interests.
It is understood concern about the manner in which the rules being imposed by PI insurers is impacting on asset allocation has been referred to the Shadow Assistant Treasurer, Senator Mathias Cormann.
Financial planners are required to hold professional indemnity insurance under section 912B of the Corporations Act, which is then reflected in Australian Securities and Investments Commission (ASIC) regulatory guide RG 126.
The objective of the legislation and the regulatory approach is for Australian Financial Services licensees to have arrangements for compensating retail clients for losses they suffer as a result of a breach by the licensee or its representatives.
However a number of planners have told Money Management that the approach being taken by the PI insurers themselves, such as limiting exposures to property trusts to 10 per cent of total investments handled by an adviser, does not sit well with the best interests duty under the Future of Financial Advice (FOFA) changes.
They said they were concerned that planners also risked falling foul of the regulatory requirements by inadvertently exceeding the so-called "book ratios" imposed by the PI companies.
There was a risk that planners would be tempted to advise their clients to move into safer, but lesser-performing products simply to meet their PI asset ratio targets.
Recommended for you
BT is to launch a new low-cost “Focus” investment menu for its Panorama platform this October, in partnership with Vanguard, seeking to compete with industry superannuation funds.
Net gains of financial advisers have already doubled since the start of FY25, according to this week’s Padua Wealth Data, with momentum gathering pace far faster than the previous financial year.
National advice firm MiQ Private Wealth has appointed a new chief executive to lead the business through a “transformative era” after penning a partnership deal with AZ NGA earlier this month.
WT Financial’s managing director, Keith Cullen, believes the firm’s Hubco model with Merchant Wealth Partners will be a “repeatable growth model” for the business as it scales its adviser numbers.
