Professional indemnity (PI) insurance hit the headlines in 2007 as the corporate regulator toughened its stance in order to protect consumers.
The collapse of Westpoint in 2005 drove the Federal Government to use PI to strengthen consumer compensation procedures. Numerous financial planners who recommended Westpoint products had either inadequate or no PI cover.
In May, Parliamentary Secretary to the Treasurer Chris Pearce announced a change to the Corporations Act, making it compulsory for licensees to have PI insurance from January 1, 2008.
Then in December, ASIC announced plans to force financial advisers take cover for events not previously covered by PI. Following a two-year transition period from January 1, licensees must have cover for products not on their approved product lists. They also need a minimum one year’s run-off cover to maximise the potential of the compensation requirements.
Common exclusions from PI policies include run-off cover, fidelity, the non-disclosure of commissions, fraud by the principal and claims arising out of the use of non-approved products.
In 2007, the watchdog got a new boss. Former Australian Securities Exchange chief and the regulator’s former head commissioner, Tony D’Aloisio, succeeded Jeffrey Lucy as chairman in May. Lucy was meant to serve two years as a commissioner after his three-year tenure, but he quit the job after eight months. Lucy subsequently took on D’Aloisio’s job and is based in Adelaide.
Planners braced themselves for PI premium hikes after the Financial Industry Complaints Service (FICS) announced the cap on complaints would be raised from July 1, 2008. Investment complaint limits will be increased from $100,000 to $150,000 and the cap on life insurance complaints will be raised from $250,000 to $280,000.
“For consumers it will mean increased access to free and independent dispute resolution,” FICS chief executive Alison Maynard says.
“For licensees it is an increase in the service it will give to their clients.”
ASIC and consumer groups had pushed FICS to increase the monetary limit almost threefold to $280,000 for non-life insurance claims.
FICS, the Insurance Ombudsman Service and Banking and Financial Ombudsman Service will amalgamate on July 1, 2008.
The FPA finished 2007 with a bang. FPA chief executive Jo-Anne Bloch unveiled a hit list, which included holding the Labor Government to its pledge of slashing red tape.
Bloch says she will press Financial Services Minister Lindsay Tanner to consider an eight-page, plain English, compliant statement of advice (SOA) the association has produced.
Practitioners who created the short-form SOA claim it will knock off 50 per cent of the cost of preparing an SOA and take half the time to produce. The FPA is in discussions with ASIC and will test it with advisers.
Bloch revealed low-cost advice and remuneration, commissions and conflicts of interest are also on her hit list.
To raise standards in financial planning, the FPA will divide its membership into two categories – certified financial planner and associate financial planner (AFP). The association is considering turning AFP into a certified designation.
