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Professional indemnity insurance for financial advisers

Why do financial advisers need professional indemnity Insurance?


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Being a financial adviser is all about giving advice that directly affects a client’s financial wellbeing. Professional indemnity insurance can help financial advisers against claims of negligence if incorrect advice is provided. Additionally, in Australia, it is a legal requirement under the Corporations Act.

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What types of risks might a financial adviser face?

Financial advisers are subject to allegations including:

  • Incorrect or inappropriate financial advice
  • Deceptive or misleading conduct
  • Failing to recommend or arrange insurance
  • Inappropriate estate planning
  • Privacy breaches
  • Employee fraud and dishonesty


What does professional indemnity insurance cover?

Professional indemnity insurance is a form of liability insurance that covers professionals against negligence claims that arise from an act, omission or breach of professional duty. If a professional provides advice or services that result in a client suffering a financial loss, that client may choose to sue in order to recover the loss. Professional indemnity insurance will cover the costs associated with defending a lawsuit and any damages that might be awarded to the client.

Specific types of claims that are covered

Professional indemnity insurance policies vary, depending on occupation and industry, but cover will usually include protection from risks such as:

  • Providing incorrect information or advice
  • Breaching confidentiality or privacy rules
  • Having a conflict of interest
  • Loss of documents
  • Not following a client’s instructions
  • Defamation, libel or slander
  • Breach of contract
  • Intellectual property rights infringements.

Cover in this day and age

These days many professionals are required to have professional indemnity insurance cover. Where once PI insurance was reserved for professions such as doctors and lawyers, PI is now taken out by a range of professionals from accountants and builders to engineers and financial advisers.

Financial advisers, insurance and regulation

Unfortunately, since the collapse of some high profile financial planners and managed investment schemes, insurers have tightened the rules for financial advisers. Advisers seeking professional indemnity insurance will now find there are fewer insurers providing PI, with higher premiums than other industries.

The Australian Government’s recent reforms to financial services regulations have also seen insurers move to limit their exposure to certain asset classes such as property trusts, mortgage funds and real estate investment trusts. However, those financial advisers who have a clean claims history can still obtain professional indemnity insurance at a reasonable price.

How to compare professional indemnity insurance for financial advisers

When comparing professional indemnity insurance policies, it is important to go beyond price and look at what is and is not covered in the policy.

Questions to ask about your cover

  • Is it specific to your industry and does it cover you for all the possible exposures mentioned above?
  • Does the insurer understand your industry and do they specialise in your type of liability cover?
  • What are the policy’s exclusions? These are key to discovering whether the policy provides you with the cover you need.
  • What amount of excess will you have to pay? There’s little point in having a cheap policy if you must absorb a large proportion of the cost when making a claim.
  • What support is provided? Will you have access to professional advice about your claim and will it be managed by a dedicated claims team?

Other features to check off

Other cover items you should check include:

  • If the policy has an approved product list
  • It covers any subcontractors employed by you
  • Covers awards made against you by external dispute resolution bodies
  • Whether it is Australian-only or worldwide cover

Only you can accurately assess whether a policy meets your specific needs, but it can also be beneficial to seek professional advice when looking for the right professional indemnity insurance for financial advisers.

Find out more about professional indemnity insurance

Public liability cover for financial advisers?

Public liability insurance covers any liability a business might incur for personal injury to a third party or damage to third party property.Third parties can include members of the public, visitors to your premises, sub-contractors and even trespassers on your property.

So why does a financial adviser need public liability insurance? The short answer is that every professional, in every industry, needs public liability insurance. If you have a business premises or you visit clients in their homes or businesses, you can be held liable for any injuries or property damage you cause. Public liability insurance covers not only your business, but any subsidiary companies you own and also your employees.

When purchasing professional indemnity insurance, it is normal practice to take out public liability insurance at the same time. While the cost will be influenced by the size of your business, it is generally not expensive and should not be overlooked.

Can I get income protection for myself or for my employees?

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Name Product Maximum Monthly Benefit Maximum % of Income Covered Maximum Benefit Period Waiting Period Options
Medibank Standard Income Protection
5 years
30 or 90 days
Medibank health members save 10% every year. T&Cs apply.
Insuranceline Rate Saver Income Protection
5 years
14, 28, 60 or 90 days
Get a $100 bonus gift after 2 months. Plus get 12 months cover for the price of 11 if you pay annually. T&Cs apply.
AAMI Income Protection
5 years
14, 28, 60 or 90 days

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Frequently asked questions about professional indemnity insurance

Q: Who is classed as a professional?

  • A: A professional is anyone who gives advice or provides a service in accordance with an established discipline.

Q: What protection does professional indemnity insurance offer?

  • A: A professional indemnity insurance policy will protect your assets in the event of a claim being brought against you.

Q: What is a known circumstance?

  • A: A known circumstance is a circumstance where an insured person knew or, given their professional knowledge and acumen, should have known that a situation would result in a claim prior to that claim being made. In such a case, the claim would be rejected by the insurer due to a ‘known circumstance’.

Q: What fact, situation or circumstance should an insurer be notified of?

  • A: Anything that might give rise to a claim during the insured period.

Q: Who is covered apart from the insured under a professional indemnity policy?

  • A: Your business is also normally covered, including other principals, directors, partners and employees.

Q: What is civil liability indemnity?

  • A: Civil liability indemnity covers you for claims that arise from strict liability where negligence is not a factor.

Q: What is the difference between a costs inclusive excess and a costs exclusive excess?

  • A: A costs-inclusive excess is where the excess goes towards your legal costs and a costs-exclusive excess is where the excess goes towards the claim settlement.

Q: What is the retroactive date?

  • A: The retroactive date is the date from which cover is provided for any act, error or omission by the insured.

Q: What is run off cover?

  • A: Run off cover protects the insured from claims that may arise at a later date that are related to the insured’s activities in a previous practice. It should usually be maintained for at least six years, unless the limitation period is for less.
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Apply for professional indemnity insurance for financial advisers

Due to tighter government controls and some notable collapses in the wake of the GFC, professional indemnity insurance has become more expensive than most other types of insurance. However, given the nature of a financial adviser’s role and the degree of risk you are exposed to, it is a form of insurance that you must have, not just to satisfy regulations, but to give you peace of mind, knowing that if something goes wrong, you won’t lose your business and your assets.

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2 Responses

  1. Default Gravatar
    SkyeAugust 19, 2016

    If my financial planner was not up-to-date with paying his insurance installments, are investors still able to sue the financial planner for fraud and receive compensation for their losses?

    • Avatarfinder Customer Care
      RichardAugust 22, 2016Staff

      Hi Skye,

      Thanks for your question. is a comparison service and we are not permitted to provide our users with personalised advice. You may wish to speak with a legal professional about these matters.

      All the best,

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