Errors and omissions insurance is a specialized form of professional liability insurance that’s well-suited for financial services firms. As a professional liability insurance, it generally helps protect a firm from mistakes that are made while providing services for clients. If you run a financial services firm in Massachusetts, here’s a look at four mistakes your firm might make that an E&O insurance policy may cover.
What Kinds of Mistakes Might an Errors and Omissions Insurance Policy Safeguard My Financial Services Firm From?
An Investment Advisor Fails to Follow Investment Parameters
Clients regularly give investment advisors parameters for managing their investments. While not limited to these investments, stocks and mutual funds may provide the clearest example of such parameters. It’s common for clients to tell an advisor to “sell shares if the price goes to $X.XX” or “buy more shares if the price is $X.XX.” Similarly, investors may instruct an advisor to sell or buy shares on a particular day.
Should an investment advisor fail to follow a client’s parameters, the client may hold your firm accountable for any losses they incur as a result of the error. Depending on the extent of their losses and circumstances surrounding the mistake, they may file an official claim or lawsuit against your firm for the losses.
Exact coverages can vary from policy to policy, but many errors and omissions insurance policies can be written to cover mistakes like these.
A Client’s Portfolio Significantly Underperforms
Financial services firms frequently remind clients that investing is normally not guaranteed. Clients may, however, seek compensation for perceived losses if their investments don’t perform to their expectations. Clients hire your firm for its employees’ expertise, and they might sue your firm if employees fail to deliver the promised level of experience and knowledge.
Risk disclosures may help legally protect your Massachusetts firm from such suits, but having a disclosure will do little to reduce legal costs associated with these types of lawsuits. E&O insurance, in contrast, may help pay legal fees associated with such suits regardless of your business’ fault or lack thereof.
Investment Advisors Fail to Research Investments
If an investment advisor provides advice about a particular investment before researching it, their advice may prove to be incorrect. Clients who act on such unfounded advice may see their portfolios decrease, and they may hold your firm accountable for the loss.
E&O insurance policies frequently cover instances like these. In the fast-moving financial services sector, this protection is especially important. Advisors can sometimes feel pressured to give advice quickly, and advisors may occasionally make a recommendation before conducting all their research.
An Employee Acts Dishonestly
If an employee acts dishonestly, E&O insurance likely won’t provide them with protection, A policy might, however, protect your firm from any suits filed against the firm over the employee’s actions.
While this is an uncommon situation, it’s an important one to have insurance for. Dishonest actions can be extremely costly to others, especially if the action goes undetected for some time. Since employers can frequently be held responsible for their employees’ actions, an employee’s dishonest act can leave a firm with a large financial liability.
Get Errors and Omissions Insurance for Your Financial Services Firm
To get errors and omissions insurance for your Massachusetts financial services firm, contact an independent insurance agent in the state. An independent agent who’s familiar with this type of professional liability insurance will be able to help you review potential scenarios your firm could face and select coverages to protect your firm in those scenarios. They can also get multiple quotes from different insurers for policies that provide the coverages your firm needs, so you can be confident the firm is getting the best E&O insurance possible.