Essential Advice for Investment Advisors: A Short Guide to E&O Insurance

Jun 6, 2024

By Hank Clement, Senior Managing Director, Corporate Risk

Constant regulatory scrutiny. Litigious environment. Operational mishaps. These are among the many risks investment advisors must contend with—and protect themselves against.

The importance of securing the right insurance coverage cannot be overstated. In the challenging world of financial institutions, working with an expert insurance broker is not just helpful, but critical. A broker like Altus Partners, that both understands the intricacies of the asset management industry and is experienced in tailoring insurance programs to ensure comprehensive protection, can make all the difference in whether a loss is covered by insurance or not.

There are many nuances to an investment advisor’s insurance program, but our focus here will be on Errors and Omissions (E&O) protection—specifically cost of corrections coverage, informal investigations coverage, and coverage for Private Funds.

Cost of Corrections: Proactive. Preemptive. Preventive.

This coverage is imperative for investment advisors since it provides reimbursement of expenses incurred to correct the error before the loss becomes a claim. Whether a trade error or another type of operational error, cost of corrections coverage allows firms to rectify the issue quickly without significant financial impact and helps protect against reputational damage.

Lately, some carriers have been attempting to restrict cost of corrections coverage, including limiting coverage to trade errors only and imposing very strict notification requirements, but Altus Partners will assertively negotiate with carriers to obtain the broadest possible coverage for our clients.

Coverage for Informal Investigations: Protection at the first sign of trouble.

Regulatory bodies often initiate informal investigations before escalating them to a formal inquiry. Because such investigations can be extremely costly, it is vital that E&O policies cover the costs associated with such investigations.

This type of coverage is less common, so carriers may have to be specifically asked to grant it. Again, this is a service that Altus Partners, as an expert in structuring E&O coverage, knows to provide as a matter of course.

Extending Coverage to Private Funds: It’s not always standard procedure.

When hedge funds, private equity funds, and venture capital funds are provided in client portfolios, investment advisors need to be aware that most E&O policies do not automatically cover them. Without explicit coverage, any claims made against the funds could result in an uncovered financial loss.

What sets Altus Partners apart.

Altus Partners is the only 100% commission-free corporate broker in America. Because we are motivated not by how much we sell our clients but by how well we serve them, you can feel confident our advice will be truly unbiased and objective—and that your coverage will be precisely tailored to meet your specific needs and exposures.

With our proprietary fee structure, any recommended additional coverage to fill an identified gap is provided to our clients net of commissions. This means Altus Partners does not profit from the additional coverages an investment advisor may need, unlike other traditional insurance brokers.

Should a claim arise, our team of experts—including in-house staff attorneys who specialize in financial institution claims—will assertively advocate for you and help you navigate the often complex claims process to ensure the best possible outcomes.

An expert review—on us.

To give you an idea of the value our knowledge and experience can provide, Altus Partners would be pleased to offer a complimentary coverage analysis of your needs and costs. To schedule your analysis, email me at [email protected] or call me at 610-526-6987.

Together, we can help you take the first step to an insurance program that most completely and cost-efficiently protects your interests as an investment advisor. Today and well into the future.