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Professional Liability Insurance for RIAs

April 5, 2019

At tax time, financial realities jump out from under the rug. Last year’s business decisions discover their long-term financial implications. Time spent looking back makes for better decisions moving forward.

As an independent, where all decisions land at your feet, it is also critical to have a solid disaster plan. You have partnered with the best for technology, compliance and management support so you can concentrate on taking care of your clients. But what about your partner in E & O protection?

"This time of year, while assessing your financial heath and plotting your revenue growth, consider also doing a review of your liabilities."


As a Registered Investment Advisor, it is time for your business to invest in its own professional liability or E & O insurance. The group coverage offered through the broker dealer is no longer adequate. You need portable insurance that will cover you now and six months from now, through changes and expansion.

Not up to speed on professional liability insurance for RIAs? Find a trusted insurance advisor that specifically offers professional liability (E & O) insurance; someone to counsel you on what is available in the insurance marketplace that is specifically for RIAs.

How are professional liability policies different for RIAs?

One critical differentiator for professional liability coverage is the defense obligation that the insurance company owes you. You want the insurance company to have the absolute and complete duty to defend you for the entire claim and to pay for your coverage defense on your behalf, unlike an indemnity only policy where the policy holder manages and pays for its own defense and the insurance company reimburses you.

Some professional liability policies for advisors offer coverage only for fee activities. Your policy should be structured to cover both fee activities and product sales.

Some insurance companies proportion the amount of defense costs that they will pay for based upon what they judge are covered versus non covered activities. You want an insurer that will pay, on your behalf, for a full defense of a claim or potential claim.

Another critical professional liability coverage feature for RIA’s is to know that any possibility or hint of a potential claim will trigger coverage under the policy. Including an incident trigger within the definition of claim under the policy is critical for early intervention in a potential claim. A “written demand” is not required to trigger loss control and investigative expense under the policy. Ideally, the policy should provide access to a loss prevention hotline that allows policyholders to discuss potential claim scenarios with an attorney. The policy should encourage early and prompt reporting of an incident.

It is also very important to review the Definition of Professional Services with your insurance broker to be sure your activities and advice given to others are fully covered under the policy. Activities as a financial planner, registered representative, registered investment advisor, pension consultant, investment consultant, investment manager, or life insurance agent are common activities that should be included automatically under an RIA professional liability insurance policy. Coverage for acts as a fiduciary including management of a client’s retirement fund should also be automatic.

Is Cyber Liability usually included?

Information and network security coverage is also very important these days, and should be included under a RIA professional liability policy, if even just for a sublimit.

"If the coverage is not available as part of the professional liability insurance policy, a separate standalone Cyber Liability Insurance policy should be considered."


Your insurance broker should be readily able to assist with this coverage. Cyber liability protection whether as a sublimit or standalone policy should include unauthorized access, potential unauthorized access, breach mitigation expense, funds transfer fraud, a social engineering incident, unintentional data compromise, or regulatory proceeding resulting from a data breach. Business interruption loss is usually covered, as a sublimit, as well. Read more on Cyber Security tools for business here.

Can I replace my existing coverage?

If you are replacing existing coverage, make sure your retroactive date on your expiring policy is preserved on the replacement policy or you purchase an Extended Reporting Period (tail) from the E&O program you are leaving. You must pursue one of these two options in order to preserve your prior acts coverage. Never let a claims-made policy lapse unless you are no longer practicing and have purchased an extended reporting period extension, or you have replaced coverage with the same prior acts coverage date.

These are just a few coverage considerations important to insuring an RIA for professional liability exposures. There are many more. Don’t assume all policies are the same. You need an insurance broker to properly examine and question the coverage intent. Talk with an independent insurance broker that specifically works with RIA’s for placing professional liability insurance…..not a generalist!

Cindy Wiedman, LiabilityPro Insurance Advisors, President

Cindy Wiedman, founded Wiedman Insurance Services, LLC (LiabilityPro Insurance Advisors*) August 1, 2014. Cindy is a Registered Professional Liability Underwriter (RPLU) and has designed and administered professional liability insurance programs over a 35-year career working for various insurance administrators in the Midwest such as Shand Morahan & Company, Kirke Van Orsdel, Marsh and Lockton Affinity.

*Currently working with investment advisory businesses domiciled in Iowa, Minnesota, Kansas, Illinois and Nebraska.

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Also read, “6 Keys to Understand and Take Charge of Your Professional Liability Insurance.”  View Resource
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