Insurance for a new financial adviser firm
What a new advice firm is actually exposed to
Almost every claim resolves into one question: was this recommendation right for this client, and can you show why you thought so at the time? Suitability is the battleground, and it is contested with hindsight. Our page on the COBS 9 suitability framework sets out what the rulebook requires. The practical point for a new firm is that the regulatory file and the defence file are the same document.
The recurring subject matter is familiar to anyone who renews an advice firm’s cover. Pension transfer and switching advice, which has produced more claims than any other single activity. Recommendations where the risk profile recorded does not match the portfolio bought. Unregulated or illiquid investments reached through a regulated recommendation. Ongoing service fees charged where the annual review cannot be evidenced. Insistent clients, where the file has to show what you recommended and that the departure from it was the client’s idea.
Two structural features make the exposure long. Complaints go to the Financial Ombudsman Service, which decides what is fair and reasonable in all the circumstances and can make awards up to a limit that is reviewed periodically, so the defences available in court are not necessarily available to you. And a firm that fails leaves its liabilities to the compensation scheme. How much of a loss an adviser is answerable for is a question in itself — see scope of duty in IFA PI claims and a worked transfer case study.
What cover a new firm needs, and why
Professional indemnity that meets your regulatory requirement, not simply a policy called professional indemnity. The FCA prescribes what the cover must do, and a policy with the wrong exclusions or too high an excess does not stop being a problem because it is cheaper. Get the requirement confirmed before you compare quotes.
Cyber and crime. An advice firm holds a complete financial picture of every client and sends transfer instructions by email. Impersonation of a client, a compromised mailbox and a redirected payment are realistic events, and none of them is what a professional indemnity policy is built for.
Directors and officers cover where the firm is incorporated, because regulatory investigation of individuals is a distinct exposure from a client claim. Employers’ liability from the moment anyone works under your direction, under the Employers’ Liability (Compulsory Insurance) Act 1969, and public liability if you see clients at their premises or yours. Office contents and business interruption on the ordinary commercial basis.
What the regulator expects of a new firm
Two things, in order. You cannot carry on regulated activity without either your own permission from the FCA or an appointment as an appointed representative of an authorised principal. That choice shapes everything else, including whose programme a claim lands on — directly authorised versus appointed representative sets out the difference. If you are appointed rather than authorised, ask the principal early and in writing whether you are covered under its policy, for what, and what happens if the appointment ends.
Then the insurance. Authorised firms must hold professional indemnity cover meeting minimum requirements in the FCA Handbook. We are deliberately not quoting a figure here, and you should be sceptical of any site that does without saying which rule it is quoting. Which requirements apply depends on your permissions and your prudential classification, the rules sit in more than one part of the Handbook, some limits are still expressed in euros and scale with income, and the figures are revised. The chapter that applies to many personal investment firms is IPRU-INV 13; whether it is the one that applies to you is a question to settle before you buy.
Three structural features are worth knowing whichever limits apply. Where a policy contains exclusions, or an excess above the permitted level, the firm has to hold additional capital resources calculated under the Handbook — so a cheaper policy with more carve-outs can cost in capital what it saved in premium. A firm that becomes aware it cannot obtain compliant cover has to notify the FCA, and there is a short deadline on that. And the Consumer Duty sits above the conduct rules, so what an underwriter asks for and what the regulator asks for increasingly overlap. Those points are drawn from IPRU-INV 13 and were checked in August 2026.
What clients and contracts typically require
Individual clients almost never ask, because the regulatory requirement already answers it. The requests come from corporate clients arranging advice for staff, from introducer agreements, from employee benefit work, and from any panel or network you want to join. These usually specify a limit and want evidence of it. Check whether cover also has to be maintained after the arrangement ends. Your own paperwork does more for you than any of it: a clear client agreement and an honest description of what an ongoing service includes are the documents a complaint is judged against — see defensible file notes.
What an underwriter wants to see from a firm with no trading history
Advice firms are underwritten on process. With no back book to examine, the questions land on the individuals and on how the firm intends to work.
Permissions and activity split. What you are authorised to do and what proportion of income each activity should produce. Whether you intend to advise on defined benefit transfers is close to the first question anyone will ask, and the answer changes the market available to you.
The advisers themselves. Qualifications, and where each person advised before, for how long, at what kind of firm and on what. Past complaints, upheld or not, follow the individual and must be disclosed.
Whether you are taking clients from a previous firm, and on what basis. Advising clients you brought with you is a different proposition from advising new ones, and liability for what was recommended to them before needs to be located precisely.
Suitability process. Fact find, risk profiling, research and due diligence, any centralised investment proposition, file checking, and who signs off before a recommendation goes out. A new firm answers this by describing the system it will run.
Higher-risk categories and claims history. Unregulated investments, non-standard assets, overseas pension arrangements, anything illiquid — declare it, because undeclared activity is the fastest route to an uninsured claim. Claims and circumstances are asked after full enquiry, of the people as well as the firm. The general checklist is in what you need to get a quote, and what drives the price explains which levers move the premium.
Getting cover in place before the first client
Treat the insurance as part of the authorisation project rather than a task for the week you go live. Evidence of compliant cover is generally needed to get permission at all, and placement takes longer for an advice firm than for most start-ups because a person has to read the presentation.
Then the usual claims-made discipline, which matters more here because of how late complaints arrive. The policy that responds is the one in force when the claim or circumstance is notified; gaps cannot be repaired afterwards; and the retroactive date decides how far back the cover reaches, which is the point to settle if you are bringing a book of business with you. When something looks like it might become a problem, notify it properly and early — the difference between a notification and a claim decides which year answers. Mechanics in cover before you start trading.
Frequently asked questions
Is professional indemnity insurance compulsory for a financial adviser firm?
For an authorised firm it is a regulatory requirement rather than an optional purchase, and the FCA Handbook prescribes what the cover must do. An appointed representative may be covered under its principal’s arrangements instead, which is one of the things to establish in writing before the appointment starts.
What limit of indemnity does the FCA require?
It depends on your permissions and your prudential classification, and the figures are in the Handbook rather than fixed by convention. Some are still expressed in euros and scale with income. We are not going to put a number on this page, because the wrong number is worse than none: confirm the requirement from the current Handbook, or send us your permissions and we will confirm it with you.
Does it matter if my policy has exclusions?
Yes, and not only for cover. Under the FCA rules a firm whose policy carries exclusions, or an excess above the permitted level, has to hold additional capital resources calculated under the Handbook. A cheaper policy with more carve-outs can cost the firm in capital what it saved in premium, which is a calculation worth doing before you buy.
What if I cannot get cover on the required terms?
The rules require a firm that becomes aware it cannot obtain compliant professional indemnity insurance to notify the FCA, and there is a short deadline attached. Do not let a renewal drift towards that point in silence: if the market is proving difficult, say so while there is still room to restructure the presentation.
I am bringing clients from my old firm. Whose policy covers the advice I gave them there?
The old firm’s, or its run-off cover. It does not transfer with the client or with you. Your new policy covers what your new firm advises, from the retroactive date agreed. If you want earlier work brought in, it has to be asked for and agreed by the underwriter.
Related reading: Insurance for a new business · The COBS 9 suitability framework · What you need to get a quote · Cover before you start trading
Apex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority (FRN 724952). This page is general information, not advice on a specific policy.