In a formal submission to Treasury’s Future of Financial Advice amendment consultation, the AIOFP – a body representing financial planning groups not aligned to the major institutions – argued that nuances in the EDR system are having a direct and negative, impact on the cost of professional indemnity insurance for financial advisers.
“The number of insurers willing to provide PI insurance to financial planners has diminished and the costs of the premiums have increased significantly,” the submission stated.
“The main reason for the reduction of insurers is that the risks have increased for insurers and the potential for an adverse determination against the insured has increased.”
The submission contends that the EDR schemes available to financial planners and their clients have demonstrated an “inconsistent” approach to determinations, which is introducing volatility into the pricing for PI premiums.
“ASIC [has] stated that the PI insurance was never designed to be a compensation scheme. However, the EDR services have effectively made it the sole compensation scheme,” the submission stated.
Increasing PI premiums are ultimately either “passed on to the consumer” or lead to a financial planner exiting the system – both of which are outcomes not conducive to the government’s stated goal of increasing access to financial advice, the submission stated.
