Being a financial adviser is all about giving advice. Working in this industry requires a high level of honesty and integrity and to operate professionally with complete transparency. However, the provision of financial advice can be a legal and regulatory minefield.
There isn’t just negligent advice to consider; there’s improper use of client information, failure to execute a transaction risk, potential loss of documents, breach of trust and regulatory changes to name a few.
Indemnity is essential.
Professional Indemnity insurance is the most important insurance policy for financial advisors! Exposures vary considerably depending on the vast array of unique characteristics inherent within today’s investment service firms. Contingent on the nature and scope of the service they provide; previous track record with respect to providing returns to investors; and on the type of clientele that they service, needs to be taken into account.
The ASIC regulatory Guide RG126 provides some minimum guidelines and may be complemented by specific association accreditation requirements it is important to consider your own unique circumstances in terms of levels of coverage provided by your insurance program.
Financial advisers need an insurance solution that is strong and flexible in order to protect them from legal liability, provide adequate defense costs, and other emerging risks such as new cyber and privacy legislation requirements or intellectual property constraints.
Those with existing policies run the risk of their liability being far greater, with the advent and ubiquity of crimes such as cyber-attack, data fraud, and social engineering activities, which are likely not to be covered by outdated Professional Indemnity policies.
Products like Commercial Crime Insurance, Directors and officers insurance and Cyber Insurance are a few policies that are becoming more and more of a necessity in today’s online environment.
Investment Management Insurance (IMI) is a specially tailored insurance policy designed to provide protection to investment managers, fund managers, private equity firms, venture capitalists, responsible entities, investment trusts and for professional funds; putting all of their potential exposures under one policy which combines Financial Institutions Professional Indemnity insurance, Directors and Officers cover and Crime Insurance as well.
The investment game can be a volatile one. And part of the nature of it, is that sometimes your investment returns won’t meet expectations, causing discontent in the client and in some cases, cause your client to go looking for recompense from you, the fund manager.
Claims-whether justified or not, include allegations of negligence in the management of investments, straying from published investment strategy, breach of mandate and investigation by a government agency or other regulatory body.
Its not just the potential risk of clients making claims against you or your business, but others are also affected by the decisions that fund managers make.
Increased public and professional scrutiny, economic conditions, higher client expectation, and tougher regulation have meant that quality insurance is now more important than ever.
It is important to remember that Professional Indemnity Insurance doesn’t just protect you from financial loss associated with third-party claims. It is also an invaluable tool in protecting your and your firm’s reputation.
With many new global insurers able to provide more capital for the investment managers insurance market. It’s a good time to re-evaluate your existing arrangements.