The Personal Finance Society (PFS) has called for a combined professional indemnity insurance (PII) and Financial Services Compensation Scheme (FSCS) fund in order to solve the lifeboat's 'good guys pay' problem.
In response to the regulator's consultation on FSCS funding the professional body's chief executive Keith Richards (pictured) said bringing PII and the FSCS together into one central fund had the financial capacity to protect both consumers and firms alike.
He said the idea was the kind of "out of the box" thinking which needed to be considered as part of the "broadest possible review" of PII and the FSCS.
"Given the link between PII and the FSCS, and the dynamics of how insurance works in relation to the legacy liability of regulated advice, we need to find an integrated and sustainable solution that responds to the flaws in both markets," he said.
"Any success the FSCS review achieves in terms of reducing the unpredictability of levies, and better aligning costs to the risk profiles of adviser and related firms, could be undermined if it results in less competition and higher premiums in the PII market."
FSCS funding and PII have come under increasingly heavy criticism from advisers and regulators alike.
Last November, FCA chief executive Andrew Bailey told the annual Association of British Insurance conference that PII was not working for financial advisers, arguing it should be the ‘front-stop' for them, akin to other professions, and called on insurers to help solve the problem.
A few weeks later, in an assessment of 200 general insurance intermediaries, the regulator said it had found clear examples of "inadequate policy limits or exclusions" among PI insurers, which were breaching its rules and caused rise for "significant concerns".
With regards to the FSCS, advisers have long bemoaned a lack of justice in the "good guys pay" system, arguing those who did not partake in riskier investments were left to prop up the scheme for those failing from taking too much risk.
Richards however, voiced concern the Financial Conduct Authority's (FCA) proposals to reform the FSCS, expected to be published in Autumn, would fail to take into account the separate PI review altogether.
He said: "We have a once in a generation opportunity to improve two markets in desperate need of reform and I'd urge the regulator to take an integrated approach and consider and investigate all options."
He added: "Ultimately, we must implement a solution that builds sustainability into the FSCS system, while promoting competition in the PII market. Only then will cost pressures on firms be eased and smoothed, in turn making professional financial advice more affordable and accessible to consumers."
The chairman isn’t answering his email
Reforms not enough
An economic cocktail
To encourage consumers to shop around
Will report to Pat Shea