Insurance advisers practice risk management for their clients on a day-to-day basis, but, according to Strategi Group, financial advice businesses should be giving more thought to how they manage their own risks - especially with the new regime on their doorstep.
According to director David Greenslade, there are more potential ways of managing risk aside from traditional professional indemnity insurance. He says risk management is going to be particularly important for firms licensed as Financial Advice Providers, and this may involve staff training, technology, or a certain amount of outsourcing.
“There is always risk in everything we do, and as a Financial Advice Provider (FAP), you’re going to have risks just like you do today as a financial advisory business,” Greenslade said.
“There are a multitude of ways that you can do this - you don’t always have to transfer your risk across to a third party through PI. You can do that through good training of your staff, through putting new processes, systems and software in place, using different outsource providers, or engaging compliance providers and expanding on their remit around what you want them to check.
“These are all control methods where you’ve identified that there’s a risk and you know you can’t eliminate it, but you can manage and control it, and you can measure how you’re tracking against it.”
Greenslade says that in some cases, advisers may choose to ‘retain’ the risks they can’t eliminate, and simply learn to live with them. He says avoiding risk is also a common strategy, though it’s one that doesn’t always pay off for advisers, who may lose out on business opportunities because they didn’t feel confident in taking on a new vertical.
“You could avoid the risk, and unfortunately I see this too often in financial advisers,” Greenslade said.
“The reality is that it’s not that hard to learn about life, disability and health insurance, for example - or you could bring someone on who already has experience in that field. Sometimes, avoiding the risk can result in a lost business opportunity.
“However, a realistic way of managing risk might be not bringing in a financial adviser who doesn’t like controls and regulations, and who doesn’t believe in the new regime.”
One of the most popular ways of managing risk is through professional indemnity insurance, and Greenslade says this has a lot of worth - though he urged advisers to stay up to date on what PI insurance will cover, and to be aware of any additional areas of coverage that they might benefit from.
“In many cases, if a risk occurs, it would be financially catastrophic,” he explained.
“What you might do is put in place finance, PI, etc. so that you can spread the cost of managing that risk. You can transfer the risk to someone else in the form of insurance.”
“Professional indemnity is forever expanding,” he added. “It’s not just around the advice you give, but it’s also around employment disputes, public liability and cyber insurance, and it’s certainly something you should be looking at.
“What we urge advisers to do is think holistically about how they’re going to manage all of these things, and then slice and dice it appropriately.”