As a registered investment advisor, you have a fiduciary duty to put your client’s interests first. In the course of your work, you serve as an all-around money expert who advises clients on how to handle their taxes, mortgages, budgets, and insurance. Often, registered investment advisors work with financially well-off individuals to handle assets that can be worth millions of dollars. This means that if there is an error or act of negligence, the financial losses a client incurs can be great. If this happens, some may have the time and resources to dedicate towards pursuing legal action.

The best way to protect your firm from a potential lawsuit and ensure its well being is by anticipating potential risks and acquiring the right insurance coverage. It is common for many companies to use insurance policies to protect themselves against the financial repercussions of lawsuits and cover the cost of unexpected accidents. As a registered investment advisor, you should consider the liabilities you face in your everyday work and find the right insurance policy to safeguard you and your business.

You may be interested in purchasing insurance for your firm if:

• You would like to insure your services and practice against claims of poor performance or errors in your work
• You store sensitive customer or employee data
• You employ others
• You provide benefits to your employees, like health insurance or retirement plans
• You lease or own your own office building and store valuable equipment or property
• Customers or clients visit your office

What insurance do I need as a registered investment advisor?

The most applicable insurance policies for a registered investment advisor often overlap with more general small business insurance policies. Moreover, because your firm is involved in professional work, you should consider professional liability insurance, which protects your firm from lawsuits over professional errors and mistakes. Listed below are the major insurance coverages you should pay attention to.

Professional Liability Insurance

Professional liability insurance, also known as errors & omissions insurance, can offer financial protection for your advisory firm when clients sue your business claiming errors or poor performance in your work and services. If work you’ve done or advice you’ve given to a client causes them to be financially harmed, they may be motivated to sue you or your firm for damages. The legal costs associated with your defense and the value of any cash settlements are covered by this insurance.

Examples:

• Errors: One of your newest advisors believes that he can make a lot of money by encouraging his clients to invest in a mining company in North Dakota. Unfortunately, he makes an error when calculating the market opportunity for the mining company, and many of his clients who invested lose a substantial amount of money. They decide to sue your firm.
• Breach of duty: One of your advisors tells all of his clients to invest in a company that happens is owned by his brother-in-law. The business is not a good investment, and it subsequently goes under. Your clients lose their life savings and go on to sue your firm.
• Lawsuits without merit: You work with a long-term client and tell him to put 20% of his income into savings because he is very close to retirement. He does not listen to your advice and instead uses the 20% he was supposed to save to invest in the stock market. The market suffers a significant correction, and your client loses nearly all he invested. He sues your firm for poor performance.

Commercial General Liability Insurance

Commercial general liability insurance protects your business financially from lawsuits and damages that arise from non-professional negligent acts. A CGL policy will cover claims of bodily injury, property damage, and personal and advertising injury that are unintentionally caused by your business.

Examples:

• Property Damage: You visit a high net worth client at his home for a scheduled meeting. As you wait in his foyer, you accidentally knock over and damage an expensive antique vase. Your CGL policy would cover the damages.
• Bodily Injury: A vendor is delivering lunch to your office. While dropping the food off in your office kitchen, the delivery person trips on an extension cord was left on the floor. He injures his hip and sues your firm for medical damages.
• Personal and Advertising Injury: Your company is rebranding and develops a new logo featuring an image of a bald eagle and a stock market chart. It turns out this logo is incredibly similar to another investment advisory firm in your area, and they sue you for copyright infringement.

Commercial Property Insurance

Commercial property insurance protects the investment you’ve made in your business property, including office space, furniture, equipment, computers, artwork, and other property that you use to run your business. Commonly covered causes of loss include fire, lightening, wind, hail, explosion, and vandalism.

Examples:

• Buildings: A severe storm causes a large tree in front of your office to fall over, damaging the front facade of your building.
• Contents: Vandals break into your office building and destroy all of your office equipment.
• Property of Others: A pipe bursts in your office break room, damaging the high-end espresso machine you have on lease.

Cyber Liability Insurance

In the modern world, most of the data that we use is stored on computers, within networks, and in the cloud. Cyber liability insurance protects your business from financial losses due to data breaches, hacking, viruses, and other cyber mishaps. This type of insurance is particularly important in today’s hyper-connected, digital business environment.

Examples:

• Data breach lawsuit: Your company network is hacked, and the financial records and personal information, including Social Security numbers, of your clients are stolen. Your clients sue your firm over this breach in security.
• Client notification costs: Your IT team discovers a security hole in your online servers, which could have exposed sensitive customer data to outside parties. You must investigate this security hole and notify impacted customers via email, regular mail, and phone. You must take on extra staff to notify your customers and be available for questions.

Workers’ Compensation Insurance

Workers’ compensation insurance is a form of liability insurance that provides financial benefits to employees who suffer work-related illnesses or injuries while working for your business. In many states, businesses that have employees are required to carry workers’ compensation insurance. In return for agreeing not to sue your business, an injured worker can receive funds for medical expenses and partial lost wages. Examples of covered expenses include slip-and-fall accidents, carpal tunnel syndrome, and injuries while driving for work-related purposes.

Example:

• The office kitchen has just been mopped, and an employee walks in and slips on the wet floor. He injures his hip and needs medical treatment. Workers’ comp covers his medical expenses.

Final Word

As a registered investment advisor, you manage your clients’ money and make recommendations meant to help them grow their personal wealth. Unlike many financial professionals, you may be in charge of your client’s entire portfolio. Because professional errors can have serious repercussions when it comes to high net worth individuals, it’s wise to consider business insurance as a way to financially protect your firm from professional liabilities. Moreover, there are everyday business risks you should consider as well. From natural disasters to employee injuries, business insurance can protect your business from a variety of common risks.