If you’re making the transition from accounting to advisory services, what does it mean for your professional indemnity cover? Here’s the lowdown from Marsh Advantage Insurance.
As an accountant, you want to provide the highest level of service to your clients, but you also need to make sure your firm is protected in case something goes wrong. That’s why it’s vital to have appropriate professional indemnity cover in place. By safeguarding your firm — and yourself — you’ll be able to keep your business running smoothly no matter what happens.
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What if you’re not covered or underinsured?
Without the right type and level of professional indemnity cover, you could be putting both yourself and your business at risk. If a claim is brought against you for a service your insurance doesn’t cover, you may end up having to pay legal and settlement costs out of your own pocket.
You should also keep in mind the new licensing rules for accountants, which took effect on 1 July. If you’re not licensed to provide SMSF advice under the new regime but you continue to do so, you’ll be operating outside regulatory requirements — and your professional indemnity insurance may not cover you.
What’s more, if this happens to you, you may even lose your membership with your professional body and have your Certificate of Public Practice suspended. You could even face a tribunal for professional misconduct, where you could be charged a fine, suspended or banned from practice altogether.
What do you need to cover?
When it comes to professional indemnity, insurers treat accounting and financial advice very differently. So if you’re transitioning into the financial advice space, you need to be covered for both activities.
But what if you’re moving to a limited licence arrangement so you can continue providing SMSF advice? In that case you may or may not need additional cover, as PI policies can differ from one insurer to the next.
Generally speaking, if you:
- Are operating under your own full Australian Financial Service Licence (AFSL): You’ll need to take out a separate financial adviser’s policy, as your accounting policy won’t cover both activities. There are a handful of insurers in Australia that offer policies for full AFSL holders, but these tend to be costly — with annual premiums starting at $15,000 plus fees and charges.
- Are operating under an existing licensee’s AFSL: Your licensee will manage your professional indemnity insurance, and the premium costs will be covered by your licensee fees. Even so, it’s important to be aware of how much insurance you have and what you’re covered for, so be sure to ask your licensee for details you are not aware of.
- Have a limited licence to provide SMSF advice only: Depending on your existing policy, you may be already covered to advise on SMSFs under the new licensing regime. If not, your insurer may offer the option to add an endorsement or extension to your policy to include this. And if you’re not sure, check with your broker or insurer as soon as possible — the last thing you want is a gap in your cover.
- Are not licensed to provide advice: If you’re not an authorised financial adviser, your existing professional indemnity policy won’t cover any advisory activities, including the provision of SMSF advice from 1 July. However, you still need to make sure you’re covered for all the services you offer across your entire client base — for instance, accounts preparation and bookkeeping, BAS and tax services, forensic accounting and auditing, or due diligence.
If you plan to obtain a limited licence down the track, keep in mind that applying for your professional indemnity insurance can be a lengthy process — so start talking with your insurance provider or broker at the start of your licensing process.
How much is enough?
At the very least, you need the level of professional indemnity cover set by ASIC regulations and your professional body. For example, accountants who are members of ICA, CAANZ or CPA Australia need to be indemnified for at least $2 million, while Tax Practitioners Board members need minimum cover of between $250,000 and $500,000 — depending on the size of their practice.
When you’re working out how much cover you need, you should also take into account the types of clients you serve and the size of your contracts with them. Think about it like this: what’s the worst that could happen if you make a professional error? Of course, the consequences could be more serious if it’s a large client or a multimillion dollar contract.
If you’re still not sure how much cover you should have, ask your broker, insurer or professional body.
What should it cost?
Premium costs vary between insurers, so take a close look at the cover on offer, as well as any limits on optional inclusions. Make sure you get what you’re paying for — remember, lower premiums don’t necessarily offer the best value for money.
For example, with a low-cost policy, lost documents might be covered up to a value of $50,000. On the other hand, a policy with higher premiums might offer the same provision up to a value of $100,000. So even if you pay more for your insurance upfront, you might be better off in the long run if you have to make a claim.
And so, with a new financial year just beginning, it’s the perfect time to revisit your professional indemnity arrangements to make sure you have the right cover for you and your firm.
This is a general overview of professional indemnity insurance and is not intended to be advice for any particular circumstances. We recommend you read the policy wording so you have an understanding of the policy terms, conditions and exclusions before you decide whether a policy suits your needs. Insureds should consult their insurance and legal advisors regarding specific coverage issues. Statements concerning legal matters should be understood to be general observations based solely on our experience as insurance brokers and risk consultants and should not be relied upon as legal advice, which we are not authorised to provide. All such matters should be reviewed with your own qualified legal advisors.
Marsh Advantage Insurance Pty Ltd (ABN 31 081 358 303, AFSL 238369) arrange the insurance and is not the insurer.
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