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Investment Advisor Insurance: More Valuable Than You Know

If you've been an investment advisor for any period of time, you know how seriously people take their finances. Really, you just need to watch a friend get worked up about splitting a check, or an angry customer asking for a refund in the line in front of you, to see the effect money has on people. And when the sums add up as they do in investment plans, expect that these will be take even more seriously. Liability insurance for investment advisors is extremely important. Make an informed search for coverage. If you compare enough packages of investment advisor insurance, you'll spend a little and receive a lot.

Errors and Omissions
When someone refers to investment advisor insurance, an errors and omissions policy is what's most commonly meant. It's not incorrect to say if you purchase any sort of liability insurance for investment advisors, you should buy this kind of protection. When a realtor claims that you caused him to lose a lot of money because of some negligent act, error, or omission, this coverage keeps your assets from being touched. And this is the case regardless of whether the realtor invented your negligence or you did in fact make an error. You can find this kind of liability insurance for investment advisors for a number of different categories, from private equity and hedge funds to securities broker dealers.

Fiduciary Liability Insurance for Investment Advisors

A fiduciary, under ERISA law, is a person who:
  • Exercises any discretionary authority or discretionary control in managing the plan or who has any authority or control in managing or disposing of its assets;
  • Renders investment advice for a fee or compensation with respect to any monies or other property belonging to the plan; or
  • Has any discretionary authority or responsibility in administrating the plan.
How does this affect investment advisor insurance? Well, it's no accident that the law was written loosely; it can be interpreted to hold all kinds of investment managers accountable for losses suffered by clients. You certainly don't want to be held personally liable for something like a company's retirement plan, which can happen under ERISA law. So follow the part of the law that allows for fiduciary liability insurance for investment advisors. Let's look at how this protects you and what it might cost.

The Costs and Benefits
Liability insurance for investment advisors can cover you against breach of fiduciary duties, remiss investment advice, improper disclosures to plan participants, faulty advice of counsel, imprudent choice of outside service provider, improper amendments to the plan documents, and, of course, negligent errors and omissions. You absolutely need investment advisor insurance against all of these. The annual premiums follow a general scale, dependent upon how much the plan is worth. For plans less than $5 million, the average premium is $1,000. For plans between $10 and $20 million, the average is around $2,300. And for plans worth $50 million, the average annual premium is $5,500.

ERISA Bonds and Investment Advisor Insurance
You're probably familiar with the requirement for an ERISA bond, which any investment advisor must have. But this is really intended for the investors, and isn't sufficient to protect you. It's imperative that you search for investment advisor insurance. Through a free search service like NetQuote.com, you can find a very reasonable quote for complete coverage. Your policy can be extremely valuable one day—without a cost that reflects as much.

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