Financial professionals deal with sensitive information in a number of ways on a daily basis. This high-stakes role in the financial world comes with a number of liabilities and risks when it comes to possible legal fallouts related to claims of negligence or malpractice.
Professional liability insurance is an important component of a financial advisor’s available resources. This is a type of coverage that may not necessarily have to be used but is good to have in the off chance a claim is brought up, such as homeowners insurance.
Let’s take a look at why it’s important to invest in professional liability insurance if you work in financial advising.
Professional Liability Basics
This kind of coverage offers protection for financial advisors against negligence and other claims by clients. It’s also known as errors and omissions (E&O) insurance and can cover things like negligence, malpractice or misrepresentation. Financial advisors, while not necessarily required to have this kind of insurance in order to operate, can feel more at ease with coverage that provides a safety net when the unexpected comes up.
Financial advisors deal with highly sensitive financial information on a daily basis and handle more than one client typically. While having more clients means more business, it also means more possibilities for liability risks down the road. Mistakes can happen at any time and come in many shapes and sizes, that’s why having a fully comprehensive piece of protection can provide the right coverage to combat against sizeable claims.
Unhappy customers may come out of the woodwork during times of financial distress in the markets. And since markets go up and down on a regular basis, there’s a certain level of stress that’s ready to ignite for any and all financial advisors.
Services and Comprehensive Coverage
A professional liability policy will outline what and who is covered. It will cover breach of fiduciary duty typically, as well as lack of regulatory compliance and legal coverage. Finance and insurance brokers can help to illustrate how E&O insurance is structured in order to cover the financial advisor when they make a mistake or have an accusation brought against them.
Even if a financial advisor is innocent, legal fees and time away from work can add up, putting stress on the finances of the advisor over time, making it all the more important to have the right level of coverage.
Exclusions of Professional Liability Coverage
Financial advisors should make sure to get the full picture of exactly what is covered and what isn’t. Professional liability insurance isn’t necessarily a blanket type coverage for their errors and omissions, or reputation. Discretionary advice is one exclusion in professional liability coverage that may surprise some financial advisors, for instance.
Another potential exclusion that isn’t unseen in the financial advisory world relates to paying bills on behalf of the client. A client may ask their advisor to take care of their bills and if something is over- or underpaid the liability falls on the advisor for the difference. That being said, professional liability coverage will probably not be able to provide coverage.
It’s important to review all portions of your coverage with finance and insurance brokers who can outline exactly what you need and exactly what is left out.
About Financial Guaranty Insurance Brokers
Since 1983, Financial Guaranty Insurance Brokers has distinguished itself as a provider of Professional Liability, Cyber Liability, and Crime insurance products for entities of all types. To receive timely, personalized service from a knowledgeable and experienced staff, call us today at (626) 793-3330 to speak with one of our professionals.