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Home Forums Australian Financial Services Licensing (AFSL) Forum Should Promoter revenue be included in PI?

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  • #2886 Reply

    When disclosing revenue for PI purposes, should promoter revenue be included when it is separate to the advice revenue?

    #3105 Reply

    Your obligation to disclose revenue will come down to what your Professional Indemnity (PI) Insurer requires.

    Your broker is best placed to advise you on this.
    As PI policies vary between providers, we are unable to give you specific advice without seeing a copy of the policy you are referring to.
    We do note that you have a duty of disclosure under insurance law and the insurer may be able to disclaim liability in cases of material non-disclosure.
    Please don’t hesitate to contact our team if you require further information.
    Author: Paul Derham
    Co-contributor: Sarah Holley

     

     

    #3106 Reply

    Yes you should include it.
    From an Insurers perspective, they are interested in revenue because they use it as a proxy for risk.  The logic is that the more revenue you have the more business/clients/work you do, therefore the more chances of making a mistake and therefore more risk – more premium.  You have revenue from 2 sources: advice revenue and promoter revenue, therefore you need to include all the revenue to ensure that all parts of your business are factored in.  I expect the risk associated with ‘advice’ revenue is greater than the risk associated with ‘promoter’ revenue.  Depending on your Insurer, they may or may not make this distinction.  My advice:

    • Include all the revenue;
    • Specify the split of advice revenue and promoter revenue; and
    • Explain why the risk associated with promoter revenue is low.

    The Insurer may or may not take this into consideration when calculating your premium by applying a lower risk rate to the lower risk revenue.

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