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Certified financial planners play an important role in their clients’ lives, helping them to navigate the complexities of managing their money. Whether it’s planning for retirement, getting out of debt, or any number of financial situations, certified financial planners are there to answer questions, give guidance, and clear up any financial uncertainty.
The weight of responsibility for a certified financial planner is not insignificant. Clients hire financial planners expecting sound advice, and customers depend on their financial planners to help make the right decisions for their financial futures. One errant recommendation or misguided strategy could lead to serious consequences—and significant losses—for a client’s portfolio. Moreover, certified financial planners are trusted with a bevy of sensitive and confidential information about their clients, from social security numbers to bank account information. All of this is to say, financial planners face a host of liability and risks when it comes to performing their everyday duties.
Luckily, having the right protection in the form of insurance can help to allay many of the fears that financial planners face. With the right set of coverages, your financial planning business can be safeguarded from a multitude of risks. It may be a client who suffered losses in their retirement portfolio and sues your business for negligence, or it may be one of your employees who loses their laptop containing sensitive customer data. The claims your business may face could be financially crippling without a comprehensive insurance package in place to protect your business’s assets.
You should consider purchasing business insurance for your financial planning business if:
- You would like to insure your services against claims of poor performance or negligence
- You store customer data like bank account information or personally identifiable information (PII)
- You employ others and provide employee benefits like health insurance or a retirement plan
- You lease or own your own office building
- You store valuable equipment or property in your office
- Customers or clients visit your office
What insurance coverage do I need as a certified financial planner?
We’ve highlighted some of the most pertinent business insurance coverages certified financial planners should consider, along with a few examples of how these coverages might be applicable to your business.
Professional Liability Insurance
As a financial planner, your job responsibilities revolve around giving advice and guidance. You help your clients plan their financial lives, and in doing so, you may face dissatisfied customers or your advice may turn out to be wrong. Professional Liability Insurance, also known as Errors & Omissions Insurance, can protect you and your business from potential client lawsuits stemming from the performance of your professional duties. If a client believes that your business has in some way caused them financial losses, they may file suit against you. Professional liability insurance can provide financial protection for you in these cases and cover your legal fees and any judgement or settlement costs.
- Errors/Negligence: You are hired by a client to help him get out of debt in five years’ time. You create a plan for him, and he follows it to the letter. But after five years, your client is still very much in debt. He accuses you of negligence in your services, claiming you miscalculated many of the details of his loan arrangements, causing him to incur costly fees and penalties. He sues you for damages.
- Misleading statements: You recommend to a client a promising new no-fee mutual fund to invest in. Your client follows your recommendation, but later finds out there are several hidden management fees in the fund. He sues you for misleading statements.
- Performance: In preparing a client’s financial plan for retirement, you recommend several investments that you believe will help your client retire by age 55. These investments end up performing poorly for the client, and he suffers significant financial losses in his retirement portfolio. He sues your firm for poor performance.
- Breach of duty: You are sued by a client who claims your financial planning business did not act in the client’s best interest. He alleges many of the investment products you recommended performed poorly and only served to earn your firm sales commissions.
General Liability Insurance
General Liability Insurance is one of the most commonly purchased types of business insurance and protects your business from lawsuits claiming property damage or bodily injury caused by your business or your employees. If your firm or one of your employees injures a third-party in the course of business, liability insurance can help protect your business against the financial consequences of lawsuits. Third-parties include anyone who is not an employee of your business, such as a vendor, customer, or landlord. General liability insurance covers claims from physical injuries or property damage caused by your business. It also covers non-physical injuries such as libel, slander, copyright infringement, or false advertising.
- Property Damage: You meet with a client at their home, and you accidentally knock over an expensive antique vase. General liability insurance would cover the cost of repairing or replacing the vase.
- Bodily Injury: A client visits your office for a scheduled meeting to discuss his retirement goals. As he leaves your office, he trips on the front steps, breaking his hip. He sues your firm for medical expenses.
- Personal and Advertising Injury: You mistakenly publish a piece of libelous information on a competitor in a local newspaper advertisement. General liability insurance would cover any resulting lawsuit.
Commercial Property Insurance
Commercial Property Insurance helps protect the value of the physical assets your firm owns or leases if that property is damaged or lost due to accidents or disasters. Commercial property insurance covers property such as buildings, equipment, inventory, furniture, artwork, and computers. Commonly covered causes of loss include fire, lightening, wind, hail, explosion, and vandalism. Note that commercial property insurance does not cover any vehicles your company owns. For that coverage, you’ll need commercial auto insurance.
- Buildings: A windstorm severely damages the roof of your office building.
- Contents: A fire in the office kitchen causes smoke that ends up damaging office furniture and computer equipment.
- Property of Others: An electrical fire breaks out in your office and damages the large-format printer your borrowed from a neighboring business.
- A Business Owner’s Policy (BOP) combines the major property and liability risks that small businesses face into one convenient package. It also helps you save money, with lower premiums than buying the individual coverages separately. This type of policy usually bundles together general liability, property insurance, and business income insurance into a single policy.
- Workers’ Compensation Insurance, often called Workers’ Comp, is a form of liability insurance that pays out benefits to an employee if he or she suffers a work-related injury or illness. If employees decide to accept these monetary benefits, they agree not to sue your business.
- Example: An employee injures his hip when moving a copy machine down the hallway. Workers’ compensation would cover his medical and physical therapy costs.
- Cyber Liability Insurance protects your financial planning business from financial losses due to data breaches, hacking, viruses, and other similar cyber events. This type of insurance is particularly important in today’s hyper-connected, digital business environment.
- Example: An employee clicks on a phishing email, exposing your company network to hackers. Hackers are able to access confidential client files, which include personally identifiable information (PII).
- Employment Practices Liability Insurance protects against lawsuits from your employees involving claims of wrongful treatment, such as discrimination or harassment, and covers any judgments or legal fees associated with these claims.
- Example: An employee files a lawsuit against your company claiming she was sexually harassed at a company holiday party.
As a certified financial planner, much of your time is spent helping others plan out a safe and secure financial future. As a business owner, though, you should stop and think about the financial security of your own company. Are you prepared for the liabilities and risks you’re exposed to? If an unhappy client were to sue your business for negligence, could your company survive? Or if a fire destroys your offices, would you be able to recover? These are the questions you must ask yourself as you think about putting in safeguards and protections for your business.
Finding the right combination of insurance coverages is critical to the success of your financial planning business. Without the right policies in place, you may be overexposed to risk. Whether it’s protecting yourself from lawsuits related to the services you provide your clients or simply making sure you have coverage for a natural disaster, make sure you’ve got the right policies in place to keep your business and your employees covered in the face of any unfortunate events.