Advisers or dealer groups could be bankrupted if the Australian Securities and Investments Commission (ASIC) pursues investigation costs after successful prosecutions, Insurance House Group director Gary Gribbin warns.

Neither advisers nor dealer groups will be able to recover costs from their current professional indemnity policies, he told insuranceNEWS.com.au.

“Professional indemnity insurance will only respond if it is based on professional negligence.

“The cover will look after associated legals, but ASIC’s [investigation] charges are not covered by the policy.”

ASIC has proposed taking steps to recover costs and, with the regulator needing to increase its budget, most expect it will.

It would act when it succeeds with prosecutions, targeting cases that were under way by July 29.

This could mean an adviser is fined $10,000, then faces a $250,000 investigation charge.

Mr Gribbin says advisers and dealer groups must talk to their professional indemnity brokers about extending their cover or taking out additional policies.

He says they may want to include a management liability policy that could be expanded to include ASIC’s costs.

“Any changes must relate to non-commercial costs, because it is questionable if ASIC costs would be covered in a standard policy.

“The adviser or dealer group needs to negotiate with their broker for the extra cover.”

Mr Gribbin says the advice industry must respond to the proposal, because policies will face uninsured exposure if it goes ahead.