Licensees hopeful of lower PI insurance with safe harbour change

13 May 2024
| By Laura Dew |
image
image
expand image

Proposed legislative changes to safe harbour duty could result in advisers having reduced professional indemnity costs, a joint submission by seven major licensees said.

Discussing changes around the removal of the ‘take any other step’ catch-all provision in the safe harbour steps, the joint licensee group submission said its removal could have numerous benefits for the advice profession and their clients.

The six members of the joint licensee group are WT Financial Group, Fortnum Private Wealth, AMP Advice, Rhombus Advisory, Diverger, Otivo and Infocus Wealth Management.

The ‘take any other step’ provision says that an adviser must ‘take any other step that, at the time the advice is provided, would reasonably be regarded as being in the best interest[s] of client, given the client’s relevant circumstances’.

This provision has led to escalating costs, the group said, thanks to the need for extensive documentation and compliance checks that have increased the cost of advice for the consumer. Rather than being able to answer simple questions, advisers say they now feel compelled to unnecessarily broaden the scope of their investigations in order to avoid non-compliance with the steps or with best interests duty.

Removing this provision would still maintain the continued objective of giving appropriate advice but remove unnecessary legal complexity. 

“The ‘take any other step’ provision, has significantly disrupted the natural course of commercial negotiations between clients and their financial advisers. This provision, by its very nature, implies an exhaustive and all-encompassing approach to financial advice, often extending beyond the client’s actual needs or desires,” it said. 

“The ‘catch all’ provision in its current form does more harm than good, hindering the delivery of high-quality financial advice and unnecessarily inflating consumer costs. Its removal is a crucial step towards a more efficient, effective and consumer-focused financial advice industry.”

It would also have the knock-on benefit of reducing the costs of professional indemnity insurance (PI) that has been identified as a significant cost for advisers. The provision currently creates uncertainty which makes it difficult for PI insurers to assess and underwrite risks which led to higher premiums for advisers to pay. 

In Michelle Levy’s Quality of Advice Review recommendations, she said that the cost of PI insurance was frequently raised by advisers as a matter affecting the cost of advice and viability of their business. 

A report by APRA, released last July, said financial planners have seen an average premium increase of at least 40 per cent in their PI insurance since 2015. 

The group’s submission said: “This change is likely to ease the concerns of underwriters, leading to more favourable insurance terms and potentially lower PI insurance costs for advisers. The reduction in PI insurance costs will not only benefit advisers but also contribute to lowering the operational costs of providing financial advice, indirectly benefiting consumers as well.

“Furthermore, a more stable and confident PI insurance market will enhance the overall health of the financial advice sector. It will provide a firmer foundation for advisers to operate with greater security and focus more on delivering high-quality, client-centric advice.”

 

Read more about:

AUTHOR

Submitted by Time to Go on Mon, 2024-05-13 12:13

I really can't see how getting rid of the safeguards with no other changes achieves anything at all. We're still the easiest profession in Australia to sue and that won't be changing.

Recommended for you

sub-bgsidebar subscription

Never miss the latest news and developments in wealth management industry

MARKET INSIGHTS

GG

So shareholders lose a dividend plus have seen the erosion of value. Qantas decides to clawback remuneration from Alan ...

2 months 1 week ago
Denise Baker

This is why I left my last position. There was no interest in giving the client quality time, it was all about bumping ...

2 months 1 week ago
gonski

So the Hayne Royal Commission has left us with this. What a sad day for the financial planning industry. Clearly most ...

2 months 1 week ago

A Sydney-based financial adviser has been banned from providing financial services in the interest of consumer protection after failing to act on conduct concerns. ...

3 weeks 3 days ago

ASIC has cancelled the AFSL of a $250 million Sydney fund manager, one of two AFSL cancellations announced by the corporate regulator....

3 weeks 1 day ago

Having divested its advice business in August, AMP is undergoing restructuring in at least four other departments amid a cost simplification program....

2 weeks 5 days ago