As a financial consultant, your firm is exposed to a variety of risks in the course of doing business. Because the foundation of your business is providing trusted financial recommendations and services for your clients, if you steer your clients wrong, they may hold you responsible and sue for damages. In addition, your company could fall victim to a number of common risks, including physical disasters such as fires or storms that result in property damage. If you serve high income clients, it’s also crucial to be aware of your liabilities in the event that a client is accidentally injured or has their property damaged in the course of your work.

Dealing with a lawsuit or other catastrophe could be financially ruinous. Most firms protect themselves from these risks with comprehensive business insurance. Whether it’s a lawsuit brought by an unhappy client, physical damage caused by a disaster, or a cyberattack that exposes customer data, the right insurance coverage will provide funds to help you cope with unforeseen incidents and keep your business afloat.

What insurance coverage do I need for my financial consulting company?

There are many types of insurance available, but the following types of coverage are particularly important for financial consultants:

Errors and Omissions Insurance

Errors and omissions insurance is a key coverage that will protect your company if clients sue you alleging that your work contained errors or was negligent. When you provide professional services and guidance in the financial industry, clients could claim that mistakes in your work caused them financial losses. When it comes to financial matters, your responsibility as a trusted consultant carries great risk, as often you may be working with a client’s retirement portfolio or life savings. Even if the claims against your firm are groundless, defending a lawsuit in and of itself can be extremely costly. Errors and omissions insurance can help protect your company by covering legal costs and settlements if you are sued by clients alleging failures or mistakes in your professional work.

Example:

• Your firm is hired by a client to manage his retirement portfolio. He is five years away from retirement, so his time horizon is short and he requests a stable, conservative investment approach. One of your employees shifts the client’s portfolio into high-risk investments, believing he can beat the market over the next five years. While initially the portfolio outperformed, a recession hits the market and your client’s portfolio loses half its value. The client is furious and sues your firm for negligence.

Commercial Property Insurance

Commercial property insurance protects the value of your business property if it is damaged or destroyed. If your business owns or rents office space and has valuable property such as computer equipment, office furniture, or artwork, it’s important to consider this coverage. Just as you might purchase homeowners or renters insurance to protect your own personal property, commercial property insurance provides the same protection for all of your business property. If an unexpected disaster strikes, it can be costly to repair, replace, or rebuild damaged items and structures. Commercial property insurance can provide the funds necessary to help you recover if a catastrophe occurs.

Example:

• Someone breaks into your home office and steals your work laptop, work cell phone, and printer. Your commercial property insurance would reimburse you for the loss.

General Liability Insurance

General liability insurance covers your business if you are held liable for third-party bodily injury, property damage, personal injury, or advertising injury. If someone who isn’t your employee is injured at your location, or if someone else’s property is damaged in the course of your work, you could be sued. General liability insurance is a commonly purchased coverage for businesses, as accidents at the workplace are common and defending against personal injury lawsuits can be incredibly costly. In addition to bodily injury and property damage, general liability insurance includes a personal and advertising injury component, which covers risks including libel, slander, and copyright infringement.

Examples:

• Bodily injury: A client visits your office to discuss her investment portfolio. She slips on ice in your entryway and falls, injuring her hip. She is unable to work at her high-income job for several months due to the injury. Your insurer would pay for medical costs, legal fees if the client sues, and a portion of the client’s lost income.
• Property damage: Your employee visits a client’s home for a meeting. He accidentally knocks over a valuable sculpture, damaging it. Your insurer would pay for the damages.
• Personal and advertising injury: Your company has designed a new logo to use on its website and in advertisements. It turns out that the logo is unintentionally very similar to another financial services firm. You are sued for copyright infringement. Your insurer would cover the lawsuit and any settlements.

Business Owner’s Policy

A business owner’s policy (BOP) is designed for small and midsize companies and covers risks that are common to most businesses. This type of policy combines general liability, property, business income, and extra expense coverage into a single package, simplifying the process of obtaining insurance. Since it provides a wide range of coverage, a BOP can help smaller companies avoid coverage gaps while paying a lower cost in premiums than they would if they bought each policy individually. Requirements to qualify for BOP can vary depending on the insurer. Typically, your company would be required to operate from a physical business location, employ fewer than 100 people, and make less than $5 million in sales per year.

Example:

• A gas explosion near your offices shatters your windows. The commercial property portion of your business owner’s policy would pay for the windows to be replaced.

Cyber Liability Insurance

As a financial consultant, your clients entrust you with personal financial information, from Social Security numbers to bank account information. If your company data systems are compromised in any way, you could be held liable. Cyber liability insurance can protect you from the financial losses associated with data breaches, hacking, cyberextortion, viruses, and other cyber threats. In some cases, insurers will provide resources to help you prevent incidents as well.

Example:

• Hackers attack your company’s network and steal financial records and personally identifiable information belonging to your clients. Your clients sue your firm for failing to keep their information safe. Your insurer would cover the lawsuit and any resulting settlements.

Additional Coverage

• Employment practices liability insurance protects your business against lawsuits by employees accusing your business of wrongful treatment such as discrimination, harassment, wrongful termination, or other employment-related issues.
• Business income insurance will reimburse you for lost income and operating expenses if your business is unable to operate due to a covered reason, such as fire, storm damage, or other property damage.
• Workers’ compensation insurance is legally required for companies with employees in most states. It covers the medical expenses and lost income of employees who are injured or fall ill while working. It can also provide benefits for an employee’s dependents in the case of an employee death.
• A fidelity bond is a type of insurance that protects you if your employees commit theft or fraud. If an employee unlawfully accesses private data, a fidelity bond would provide coverage.

Final Word

When you work as a financial consultant, you could be held liable for many risks. Your clients rely on you to provide accurate advice, and if they feel you have been negligent, they could sue you. Plus, like most businesses, you could be struck by an unforeseen catastrophe such as a fire. It’s important to consider your business’s needs and purchase a range of insurance that will financially protect you in the event of an unexpected disaster or lawsuit. This will ensure that you and your clients feel confident that your business will be able to cope with any major incidents that arise.