This is a hypothetical case study. IFA firm Z, the individual clients, and the redress figures are illustrative only. Nothing here describes any real firm, claim, or insurer response.
IFA firm Z is a small directly authorised financial adviser firm. Between 2017 and 2018 the firm advised approximately 30 clients on transfers out of defined benefit (DB) occupational pension schemes into personal pension arrangements. The advice period coincided with a wider industry surge in DB transfer activity, driven by historically high cash equivalent transfer values (CETVs) and client interest in flexibility under the pension freedoms regime. Firm Z held the relevant permissions and had professional indemnity cover in place on a claims-made basis with annual renewal.
In 2024, following broader FCA supervisory attention on DB transfer advice, firm Z was required to carry out a past business review of the 2017-2018 advice file. The review was conducted against the FCA's expectations in COBS 9 on suitability, together with the FCA's redress guidance for unsuitable DB transfer advice. Of the 30 files reviewed, 20 recommendations were assessed as unsuitable, principally because the case papers did not evidence that the transfer was clearly in the client's best interests, or because the attitude-to-transfer risk was not adequately explored alongside the loss of guaranteed benefits.
Redress was calculated by comparing the value of the benefits the client would have received had they remained in the ceding scheme with the value of the arrangement they now held, using the FCA's prescribed assumptions on discount rates, mortality, and inflation. In this hypothetical, the redress per affected client ranged from around £15,000 to more than £120,000, depending on service history, age at transfer, and the specific benefits foregone. Aggregate redress across the 20 unsuitable files was estimated at approximately £1.1 million before costs.
Where affected clients had not already complained, firm Z was expected to write to them under the past business review, explain the finding, and offer redress. Under DISP 1 the firm handled each matter as a complaint, with the eight-week final response window and referral rights to the Financial Ombudsman Service (FOS). Two clients who disputed the offered figure referred their complaints to FOS under DISP 3, and the ombudsman upheld both with modest uplifts in the redress calculation.
Firm Z notified its PI insurer under the current-year policy as soon as the past business review indicated that unsuitable advice had likely been given. The policy contained an aggregation clause treating claims arising from a single act, error, omission, or series of related acts, errors, or omissions as one claim for the purposes of the limit of indemnity and the excess.
The insurer took the position that the 20 unsuitable recommendations arose from a related pattern of advice conduct during the 2017-2018 transfer wave and therefore aggregated as a single claim. That was helpful to firm Z on the excess (one excess rather than 20) but the aggregate exposure sat against a single per-claim limit rather than being spread across multiple limits. Cover was accepted subject to policy terms, the aggregation position, and the firm's duty of fair presentation under the Insurance Act 2015 at the last renewal. The firm's broker had documented the exposure to DB transfer business at renewal, which supported the fair-presentation position.
Had firm Z become insolvent before completing redress, eligible clients would have been able to claim against the Financial Services Compensation Scheme (FSCS), subject to the scheme's limits and eligibility rules for pension-related claims. FSCS acts as a backstop where the authorised firm cannot pay; it does not replace the firm's or its insurer's primary liability.
Several themes recur in hypothetical scenarios of this kind, and are worth taking seriously at renewal and mid-term:
Related reading: concurrent liability for financial advisers, scope of duty in IFA PI claims, and the IFAs' PI insurance UK guide.
Apex Insurance Brokers Limited is authorised and regulated by the Financial Conduct Authority. Firm reference number 724952. This entry is general information, not advice on any particular policy. The case study is hypothetical and does not describe any real firm or claim.