Wiki — Renewal advice · IFAs

Renewal preparation for FCA-regulated independent financial advisers. IFA PI has been one of the more challenging markets through the current cycle, and the firms that present cleanly at renewal are the ones that have the best chance of a proportionate outcome. This entry sets out what to prepare and why it matters.

The regulatory floor — IPRU-INV 13

FCA-authorised personal investment firms sit under the PI requirements in IPRU-INV 13. The rules require cover with a minimum limit calculated by reference to income and the activities undertaken, with prescribed extensions and specific requirements on the wording. The limit is generally:

• A minimum of €1.25 million any one claim and €1.85 million in the aggregate, or higher figures where firm income requires; the sterling equivalent is set periodically.
• Standard exclusions permitted are limited by IPRU-INV 13, and any excess must not exceed the firm's own funds.
• Cover must include claims arising from acts, errors and omissions in the provision of designated investment business.

These are the regulator's minimums. Firms whose client base, average portfolio size or claims history warrants more should buy more.

Why the IFA market has been challenging

Three drivers sit behind the underwriting caution across the class:

• Defined-benefit pension transfer advice. The FCA's supervisory work, redress schemes for firms including British Steel, and ongoing FOS claim volumes have made DB transfer work a defined underwriting exposure for insurers. Firms with any historic DB transfer work — even where the current permission has been surrendered — attract closer scrutiny.
• SIPP-related work. Introductions to unregulated investments within SIPP wrappers have driven a decade of claims and continue to do so. Firms with historic exposure to these introductions face careful underwriting.
• Discretionary and platform-based advice. As portfolio sizes have grown, so has the potential quantum of any single claim, and insurers price accordingly.

The renewal proposal — what to include

The IFA proposal is longer and more detailed than most professional lines. Underwriters need to see:

• FCA permissions. Current permissions in full, historic permissions surrendered in the last six years, any voluntary or agreed variations.
• Income split. Trail and ongoing servicing, initial advice, corporate work, mortgage income (if separate), any other regulated income streams.
• Assets under advice or influence. Total AUA/AUM, average portfolio size, number of clients.
• Advice types. Percentages by pension advice, investment advice, protection, mortgage, tax-related advice, corporate advice.
• DB transfer history. Number of transfers advised in each of the last six years, average transfer value, split of positive versus negative recommendations, current permission status.
• Investment mix. Use of platforms, discretionary managers, model portfolios, structured products, unregulated introductions (historic), non-mainstream investments.
• Compliance framework. Compliance function (in-house or outsourced), file-checking regime, T&C scheme, current supervisor arrangements.

Claims and complaints — full disclosure

Every claim, every complaint upheld by FOS, every complaint declined by FOS, every complaint still open with FOS, and every circumstance the firm is aware of that might become a claim — six years of history. Consumer Duty (PRIN 2A) has raised the FCA's attention to consumer outcomes and firms should expect underwriters to ask about complaint volumes, root-cause analysis and any FOS pattern.

Risk management the underwriters look at

Beyond the financial and permissions detail, underwriters price the risk management around the advice process:

• Suitability report standards and file-checking rates.
• Client segmentation and how it flows into advice.
• Ongoing servicing evidence — how the firm demonstrates ongoing suitability for retained clients.
• Vulnerability identification and the recording of adjustments — FG21/1 continues to be a live compliance area.
• PROD (product governance) discipline for solutions used.
• Cyber controls, given the sensitive data held.

The consumer-outcomes angle

The FCA's Consumer Duty introduced through PRIN 2A imposes a set of outcomes on firms — products and services, price and value, consumer understanding, consumer support — and requires firms to be able to evidence how they meet them. This is not a PI wording point but it is an underwriting point: firms with visible, documented Consumer Duty implementation and monitoring look different to insurers from firms whose implementation has been more rhetorical. Bring it into the proposal narrative.

Practical timing

IFA PI proposals take longer to complete than most. Start at least eight weeks before renewal. Get the numbers agreed with the finance function early. Draft the complaints narrative with the compliance function so it is consistent with the firm's own regulatory reporting. Take the proposal into the market with enough time for underwriter questions to be answered without pressure.