Why Do Financial Planners and Investment Advisors Need Insurance?

Most businesses need insurance to protect them from various incidents that could bring financial or reputational damage to their organization. Financial planners and investment advisors fall into this category, too, although they carry other types of risk that some businesses don’t. Below is a detailed description of some of the most common types of insurance that financial planners and investment advisors should consider.

Professional Liability Insurance

This type of insurance is also referred to as E&O, or errors and omissions. It protects financial planners and investment advisors from any claims of negligence, misrepresentation and/or malpractice.

Clients put a lot of trust into financial planners and investment advisors. When the plans go wrong and the clients lose money, they can sometimes try to blame those they have hired for why things went wrong.

Unhappy clients can often seek to recover damages they say that financial planners and investment advisors caused them if they lose money — even if it was no fault of these professionals. E&O insurance will provide coverage to these businesses whenever a claim that falls under this category is made against them.

Cyber Liability Insurance

Nearly every business today assumes some level of risk to cyberattacks. This is especially true with those in the financial sector, as they have to obtain and store personal and financial information for all their clients. Unfortunately, there is no other way to do their job nowadays.

While advances in technology provide a lot of benefits and conveniences for clients and advisors alike, there are also a lot of risks, too. Should financial planners and investment advisors experience a breach or cyberattack on their core systems, it could prove to be an extremely costly experience.

In addition to trying to recover any information or assets that are lost, businesses would need to spend money on things such as marketing to re-build confidence in clients, credit monitoring for anyone who was affected, and legal costs for anyone who files suit against them.

Cyber liability insurance is very important, then, to provide protection to these businesses in case the business ever becomes the victim of a cyberattack.

Fidelity Bonds

Any business in the financial or investment sector is particularly susceptible to losses that are caused by dishonesty or fraud. There are many different ways in which this could occur, including misappropriation, forgery, theft, wrongful conversion, embezzlement, wrongful abstraction, willful misapplication and larceny.

With so much money on hand — and so much of their clients’ money at their disposal — financial planners and investment advisors take on a lot of risk in these areas. There are times, unfortunately, when certain bad actors within the company may make decisions that have harmful effects on clients and the business alike.

Fidelity bonds are a way that these businesses can get protection in case any of these instances occur. If any of these infractions do happen, clients would likely seek major compensation. It’s also possible that the company could face major fines and other financial penalties as a result — all of which could be covered by fidelity bonds.

Other ‘Normal’ Business Insurance

Like all other businesses, financial planners and investment advisors should also consider other “normal” business insurance. In fact, these coverages may be mandated, depending on where the business is located.

One type is general liability insurance. This will cover all the basic risks that a business may face. It covers incidents such as clients slipping-and-falling while at their offices, a customer’s property being damaged, or other injuries caused by marketing and advertising such as libel or defamation.

Financial planners and investment advisors can also purchase an all-encompassing BOP, or business owner’s policy, which would provide insurance for their property. This would be especially important if the company owned the real estate out of which they operate.

Finally, financial planners and investment advisors may be required to purchase workers’ compensation insurance. Even if they aren’t required to purchase this policy in their state, it would be a good idea to do so if the business is anything more than a single-person operation.

Workers’ compensation provides coverage in case employees get hurt at work. In these cases, the employees’ health insurance likely wouldn’t provide coverage, which would force the business to cover any damages.

It’s also possible the business might face a lawsuit from the employee who was hurt on the job. This would bring with it other costs, such as legal fees and damages that are awarded via civil court.

Good Life Has You Covered

As is evident, financial planners and investment advisors take on a lot of risk in their day-to-day business activities. This necessitates proper insurance coverage, much of which we have outlined above.

If you are a financial planner or investment advisor seeking coverage, contact our team at Good Life Insurance Associates to learn more about our top-rated carriers and insurance policies.