Retroactive professional indemnity (PI) cover can be a thorny issue for advisers if they are taking out insurance for the first time or want to change insurers.

Most insurers are reluctant to give retroactive cover to new advisers (cover for advice given before their policy came into force) because they have no insurance history.

If advisers are switching insurers, they will usually get retroactive cover backdated to the beginning of their previous policy if they can prove they had one, albeit with another insurer. 

Even if advisers do get cover, insurers will charge a pricey premium for separate retroactive cover to protect the adviser and their business from liability for negligence claims arising from past advice.

For many financial advisers and their businesses, the cost put this option out of reach.

Quadrant director Tony Vidler says every adviser needs retroactive cover though many don’t understand how important it is, and Quadrant has made it easy and cost-effective to access this cover.

“We have built it into the PI contract, as opposed to an optional add-on, which is what most of the market does,” Vidler says. “This ensures that when you are using our product, it doesn’t matter who you had your previous cover with. Your current product will cover you.”

FAP cover

If you’re operating under a FAP (Financial advice provider) licence, Quadrant’s policy will cover individual advisers as well as the licensed business.

Hutchison Rodway senior adviser Phil Mitchell, who is the main point of contact for those wanting to join Quadrant’s PI scheme, says the product is a game-changer. 

“In the past, people were buying a PI policy and then wanting retroactive cover for all past advice when they’d never had PI cover in the first place. Insurers were pushing back, saying they would offer retroactive cover only in relation to the PI policy an adviser previously had in force. Advisers had to prove they actually had a policy. If you did, insurers would start the retroactive date from the start date of that earlier policy.”

But, he says, that is not the case with Quadrant.

“We don’t care if you had a policy last year. We’re covering you for everything you’ve ever done, regardless of whether you’ve had a previous policy or not. It’s a massive bonus for advisers and their businesses.”

It is more complex, however, if an FAP has acquired another business or client base.

Liability issues can arise from past advice that was given – maybe years earlier – to clients of the acquired FAP, which likely no longer exists.

The problem is becoming more common as advisers and FAPs choose to amalgamate, or sell up and leave the industry in the wake of the new licensing regime which kicked in three months ago.

“If the original broker is no longer in business and something goes wrong with the policy, who are clients going to chase?”, says Quadrant director Kevin Smee. “You’re the front man. You’ve bought the client base and you didn’t give the advice, but the client sees you in the frame, whether you’re at fault or not. They will have a go at whoever ‘owns’ the client at the time. That’s the issue.”

In this situation, advisers could find themselves in the invidious position of being sued for advice that was given years ago by somebody else.

The answer, Mitchell says, is for those buying or selling FAPs to buy run-off cover. Quadrant offers this as a separate policy, meaning it is not included in its standard PI package.

Typically, run-off cover is bought by either the vendor or the purchaser when a FAP is closing or ceasing to trade. It covers the ‘old’ FAP’s prior history and protects the acquiring FAP which now ‘owns’ the client, even though the person who gave the advice is gone.