Some types of insurance are necessary for those starting just about any kind of business. For example, you need general liability insurance in case a client slips in a spill and breaks a hip. You need workers’ compensation insurance in case the person who trips is one of your employees.
You may also want to get cyber liability insurance. This can help cover your losses if a data breach exposes confidential client information.
What’s covered under E&O policies?
It’s also crucial for RIA and other types of financial advisory firms to have professional liability insurance. This is also commonly known as E&O insurance because it helps with liability for errors and omissions.
Many types of professionals whose customers rely on them for their skill and experience carry some type of E&O insurance. It can help keep your business from being financially devastated by a negligence or misrepresentation claim.
It’s crucial to research various types of E&O coverage to determine what best meets your needs and is in your price range. Does it cover fraud and breach of fiduciary duty? If not, you may need to invest in a fidelity bond. Does the coverage protect you from mistakes by your employees as well as yourself?
It’s important to look at what services you’re providing and the terms of your contracts with your clients before determining precisely what type of coverage you need. It’s also crucial to make sure that all of the financial professionals working for you understand what they can and cannot promise customers and what kind of advice they should (and shouldn’t) offer.
Having insurance shouldn’t prevent you from fighting a lawsuit
Having professional liability insurance coverage certainly doesn’t mean that you shouldn’t challenge a legal claim that’s without merit. Some people are quick to blame their advisors when their investments don’t perform as they’d hoped. Setting a case may seem like the easiest thing to do. However, it can do serious harm to your business and your reputation.
Whether you’re in the formation stage of your business or you’re dealing with a lawsuit, it’s crucial to have experienced legal guidance to help you make the best possible decisions for the business and all of those who depend on it.