Advice and suitability
Claims that a recommendation was inappropriate for the client's circumstances.
Financial Planner Professional Indemnity
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Financial Planner Professional Indemnity
Professional indemnity for AFS licensees and authorised representatives.
Advice claims usually arrive after a market fall or a declined insurance claim, when a client revisits what they were told years earlier. Statements of advice, product replacement and insurance recommendations get examined line by line, and the loss claimed is the difference between what happened and what should have happened. AFCA determinations drive much of the exposure.
What is it?
Financial planners advise on superannuation, retirement, investment, personal insurance, estate structuring and SMSFs, operating under an Australian financial services licence or as an authorised representative. ASIC Regulatory Guide 126 sets out the compensation arrangements licensees dealing with retail clients must hold, and professional indemnity insurance is the usual way that requirement is met. Advisers are also listed on the ASIC Financial Advisers Register.
What does financial planner professional indemnity cover?
Product replacement
Exposure from switching superannuation, investment or personal insurance products.
Complaints and AFCA
Costs of responding to external dispute resolution, where the wording provides for it.
What affects the cost?
- Funds under advice and client numbers
- Advice types, especially SMSF and property
- Licensee structure and adviser numbers
- RG 126 limit requirements
- Claims and complaints history
Worth raising on the call
- RG 126 sets minimum limit and reinstatement expectations for retail advice licensees.
- Run-off cover is critical because advice claims commonly emerge many years later.
- Advice given under a previous licensee is not automatically picked up by the current policy.
Claims we are commonly asked about
Insurance lost during a super switch
A client is moved to a new superannuation fund and the insurance held in the old fund lapses before the replacement cover is accepted and in force. If a claimable event happens in that window, the loss claimed is usually the full benefit that would otherwise have been paid.
SMSF and geared property strategy
A client is advised to establish a self managed fund and acquire a geared property, the fund becomes illiquid and the strategy is challenged at AFCA years later. The claim generally seeks the difference between the outcome achieved and a compliant alternative strategy.
Portfolio out of step with the risk profile
A retiree's portfolio carries a heavier growth weighting than the documented risk profile, and the mismatch surfaces after a market fall. The Statement of Advice, risk profiling record and file notes generally decide whether the allocation can be defended.
Worth confirming in the wording
- Worth confirming whether the limit, reinstatements, excess and defence cost structure actually satisfy your licensee's RG 126 expectations rather than just matching a number in a contract.
- Worth confirming how the wording deals with advice given while authorised under a previous licensee, because prior acts cover is not automatic on a new policy.
- Worth confirming whether AFCA complaint handling costs, ASIC investigation costs and regulatory awards are all contemplated, since wordings treat each of them differently.
Common questions
Is professional indemnity compulsory for financial advisers?
Licensees dealing with retail clients must have adequate compensation arrangements, and ASIC Regulatory Guide 126 sets out what that means in practice. Professional indemnity insurance is the way most licensees meet the requirement. Authorised representatives are usually covered under the licensee's policy, but the terms and any excess passed down are worth reading.
What limit does RG 126 require?
The guidance links minimum cover to the licensee's revenue and the nature of the client base, and also addresses reinstatements, defence costs and excess levels rather than a single flat figure. Because the requirement is structural rather than one number, the schedule needs to be checked against the current guidance each renewal. Your licensee will usually specify what it expects.
Do I need run-off cover if I leave the industry?
It is generally a serious consideration. Professional indemnity is written on a claims-made basis, so a complaint made after your policy ends will usually not be picked up without run-off cover in place. Advice claims commonly surface many years later, particularly after a market fall or a declined insurance claim, which is why run-off periods for advice practices are often long.
What does financial planner professional indemnity cost?
It depends on the practice rather than a set rate. Insurers rate on funds under advice and client numbers, the advice types provided, particularly SMSF, property and complex structures, licensee structure and adviser numbers, the RG 126 limit required, and claims and complaints history. Advice mix generally moves it more than practice size alone.
General information only. Cover, limits and exclusions depend on the PDS, TMD, eligibility, underwriting and the policy terms. See professional indemnity insurance for the wider picture.
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