Professional indemnity cover after you stop advising
A complaint about advice you gave can arrive years after you retire. Find out now which policy would answer it.
A complaint about advice you gave can arrive years after you retire. Find out now which policy would answer it.
Professional indemnity insurance is written on a claims-made basis. The policy that responds to a claim is the one in force when the claim is made, and the date of the advice does not decide it. When you stop advising and your own policy ends, a complaint about advice from years earlier needs a policy to answer it.
A client can complain to the Financial Ombudsman Service within six years of the event they are complaining about, or within three years of when they became aware, or ought reasonably to have become aware, that they had cause to complain, whichever is later. For long-term products such as pensions, that second limit can run many years after the advice was given.
At retirement, find out which policy will respond to a complaint made after you stop about advice given before you stopped.
When a firm ceases to trade, the usual answer is run-off cover: a policy bought to respond to claims made after the firm closes. Its cost depends on the firm's history, the type of advice given, and how long the cover runs. It is a cost of closing, and it belongs in your exit budget from the start.
Check the terms as well as the price. Read the limit of indemnity, the excess, the period covered, and the exclusions. Some policies exclude particular kinds of advice, such as defined benefit transfers, or apply a separate limit to them.
When a buyer acquires the company, the company and its history go with it, and claims about past advice fall to the company's insurer. When a buyer acquires the business and its assets, the past advice usually stays with the seller's company, and the seller needs run-off.
Between those two cases there are many variations. A sale agreement can allocate responsibility for past advice in either direction, and warranties and indemnities in the agreement can bring the liability back to the seller personally. Read those clauses with your solicitor before you sign.
Any complaint that is open when you stop, or when the firm is sold, needs an owner. Record who will handle it, which insurer has been told about it, and who pays if it is upheld. A buyer will ask for a list of open complaints and for any circumstances you have reported to your insurer that have not yet become claims. Disclose all of them. A complaint that comes to light after completion and was known about before it can breach the warranties in the sale agreement.
Defending a complaint years later depends on the file. If the firm closes, decide who keeps the client files, where, and for how long, and make sure they can be found and read when a complaint arrives. Files held in a software system the firm stops paying for are of no use to you in a dispute five years later. Export them in a form you can still open, or agree that the buyer keeps them and gives you access when you need it.
When you join Securo, professional indemnity moves to Equity & General's arrangements along with compliance, paraplanning and administration. Ask, before you join and in writing, three questions about it.
The answers depend on how your firm joins, and they should be in the agreement. Ask the same three questions of any buyer you speak to.
An insurer pricing run-off, or a buyer assessing past advice, looks at the same things. Gather them before the conversation.
A clean history makes run-off cheaper and a sale simpler. A history with a few awkward cases in it is easier to insure when the files on those cases are complete and the reasoning is written down.
How to hand over the households who have never dealt with anyone else at the firm.
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Of everything a principal does, the research and report writing is the easiest to hand to somebody else, and handing it over frees the time the rest of the exit needs.
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After completion, a buyer's integration team moves clients, data, fees and staff onto its own systems. Ask to see that plan before you sign.
Read itSteven Bates, Director of Advisory at Equity & General, takes the first call with every adviser. Ring him on 020 8396 0486 or send a short note about your firm.