Accountants looking to provide financial advice need to be mindful of the litigation risk associated with those services, according to an insurance specialist.
“Be careful around perceptions of professional advice,” IPA Insure director David Martin told the Institute of Public Accountants 2015 National Congress on the Gold Coast this month.
“When property values are increasing, when we’re not in a difficult market, clients are not going to be losing a lot of money necessarily and they’re probably not going to feel too much pain in the event of a poor decision that goes against them.
“When you start to go into a tighter economic circumstance, one of the key things that does occur is that clients are pretty much looking to nail you for whatever they can I think, or nail somebody, and one of the soft targets is this perception of providing financial advice.”
Martin also warned practitioners not to underestimate client relationships when assessing potential litigation threats.
“I hear practitioners saying to me ‘look, the only reason I’m buying insurance is because I have to – I don’t want it, I’m not that interested, no one is going to sue me’,” he said.
“The issue associated with that is every claim we’ve got sitting on our books at the moment bar two is from a client that has been a client with a practice for more than five years.”
Further, he said the increased litigious environment accountants were currently experiencing would result in a significant increase in professional indemnity (PI) cover premiums in the short term.
“I think we’re going to see a doubling over the next 18 to 24 months,” he warned.
“PI is now 15 per cent cheaper than it was three years ago and about 40 per cent cheaper than it was eight years ago.
“But claims are up 60 per cent on what they were last year, so I think you’re going to see some response or some reaction to that.”
