"They are considered to be commercial issues between the advice firm and the consumer. And there's a real moral hazard in providing insurance for that - we just can't do it."
However, he says advisers should still let their insurer know if there is such a dispute, event though they are not covered.
"Quite often a fee dispute can grow arms and legs and evolve into a professional indemnity claim later on down the line.
"There's a risk that if you don't notify the initial fee dispute, and it evolves 12 months later into a PI claim which is covered, you're risking voiding cover for that claim because you didn't notify the original cause."
Two types of wording
When it comes to notifying insurers of 'circumstances' there are two wordings commonly used in PI polices that advisers should know, as they have different implications.
There is policy wording which says an adviser has to notify a circumstance which is likely to give rise to a claim; or it might say notify a circumstance which may give rise to a claim.
Newell says: "The thresholds between the two are way different.
"So if your policy wording says 'likely', a reasonable layperson has got to expect that it's got a more than 50 per cent probability of that turning into a claim, whereas the 'may' language is a way lower threshold, it can be 1 per cent.
"So it is very important that advisers have a look at their policy, see what it says, and if in any doubt the overarching advice is to notify anyway, just to cover your backside really."
Not a transactional product
Finally, while PI insurance is a difficult marketplace, Newell says he would encourage advisers not to treat it as a transactional product.
Rather, they should work with their insurer to try and de-risk their business. This could help set them up for a better future.
"It is there to support them, at the end of the day, protect their balance sheet and de-risk their firms," Newell says.
He cautions against always looking for the cheapest deal while disregarding the provider.
"What I've seen, because I have been doing this for almost 30 years, is that throughout the market cycle you get overseas insurer competition come in at certain points of the cycle, because they see an opportunity.
"And when the cycle turns, they're the sorts of insurers that run for the hills when the going gets tough.
"So you want an insurer that is prepared to stand by you through thick and thin."
carmen.reichman@ft.com
