Insurance for Financial Advisors | Top 4 Policies Every Financial Advisor Needs

Insurance for Financial Advisors. In my experience there are four main policies every financial advisory firm should have, and several optional coverages to be considered. I’ll describe my reasoning of why these coverage forms are important to have and how best to get them.

What are the four main policies that every financial advisor should have and why?

1. First is going to be Financial Advisors E&O insurance which is also known as Errors & Omissions or Professional Liability Insurance – this policy form is going to protect you, your firm, and your other advisors from claims – such as lawsuits which allege some professional wrong doing. Examples of wrongdoing can include providing clients inaccurate advice, professional negligence, breaching your fiduciary duty to a client or clients, and simple mistakes that led to a client suffering a financial harm. I did a deeper dive video on this policy type and you can watch that here. This policy needs to be crafted to include ALL the services you offer clients such as consulting, sale of securities, sale of life insurance and disability insurance, and ancillary services such as accounting and bookkeeping services. This is a highly bespoke policy form
2. Second on my list of critical coverage parts for Financial Advisors is Cyber Insurance which is a coverage part only purchased by about 30% of small businesses today. Not sure what percent of financial advisors are purchasing cyber but i wouldn’t be surprised if it’s also in that 30% neighborhood, which is scary. A financial advisor’s entire business is data. You couldn’t run your operations with out access to your data, your computers and your storage devices, right? If that’s correct what would happen if ransomware hit your network and shut you down. What would you do? Who would you call? What would it cost? The answer to the cost question is likely a high six figure number. Another reason why cyber insurance is critical is to protect your money from fraudulent theft such as social engineering or wire transfer fraud. The best news about cyber is that it’s relatively cheap to get. For a more detailed explanation of cyber insurance for Financial Advisors, you can see this video
3. Third on my list is going to be Commercial Crime Insurance to protect your client’s money and securities as well as your own. When you have control over your client’s money, what happens if it’s stolen or pilfered from a bank or brokerage account?
4. Last is going to be a general business policy often called a BOP to cover your general liability and property exposures and other miscellaneous business exposures. and you guessed it, I have a video on BOP policies for Financial Advisors you can see here

What Else do I Recommend for Financial Advisors?

Depending on the size of your firm, it’s common for larger advisors to add D&O or Directors & Officers Liability to their E&O in a combined policy form. This broadens the protection for the firm’s owners and leaders from claims alleging wrongdoing in managing the firm.

1. The next policy is a combined Employment Practice Liability (EPLI) and Fiduciary Liability policy. EPLI protects the firm and it’s leaders from claims which allege wrongful employment acts such as discrimination, harassment, wrongful termination, and more. The Fiduciary Liability section covers the trustees of any ERISA benefit plan such as a 401k plan, for claims that arise alleging breach of ERISA duties.
2. Then we’ve got standard forms of coverage such as Workers Compensation to protect employees of the firm, Business Auto protection, Umbrella or excess liability insurance to provide an extra measure of protection over your general liability and any auto liability coverage. Important to keep in mind is that Umbrella or Excess policies do not provide extra protection over your E&O, D&O, EPLI, or Fiduciary policies.

How do you get these coverage forms?

If you do a google search for insurance for financial advisors or some combination of that you’re going to get a bunch of listing from direct sellers who I know only sell one or two of the policies mentioned, you’ll see digital insurance brokers who don’t look like they know what they’re talking about when you go to their websites, and you’ll see a lot of big name insurance companies – some of them will sell you a policy directly, some will refer you to one of their agents. You’ll also see “association” type plans which I highly discourage going with.

It’s going to be quite a ways down the Google pipeline before you see an independent broker like me and that’s just a fact of how big a budget we have versus the big names.

But being high on Google’s list doesn’t necessarily make the seller the right choice when it comes to insurance for finanical advisors, in my opinion. I honestly think the best source of coverage and options is going to work with a broker like The Coyle Group that specializes in insuring Financial Service Firms like Financial Advisors. We have the expertise and deep market representation to make sure we’re getting you and your firm the best protection at the best price. Does sound self serving? Sure, it does, but think about how you position yourself to your marketplace. Do you think small business owners or wealthy individuals should engage a big name institution or do you think your level of service, expertise and maybe history makes more sense?

Call Center vs. Boutique Advisor

Doing business with a big call center is probably not what you’d consider as “ideal” for all of your clients, and we wouldn’t either, so excuse me for my bias but I think you know where I’m coming from here.

The bottom line is that you face significant threats from damaging lawsuits, and big risks when handling the money of others. You need protection that’s bullet proof so that you have the peace of mind that one error or oversight doesn’t put you out of business. Do you trust that responsibility to an online broker or call center, or do you think using an entrepreneurial expert is a better bet?

Want to learn more – give me a call, drop me an email or book a call on my calendar. My contact info is in the description box below and I look forward to hearing from you.

Thanks.