When it comes to E&O insurance, surprises are the last thing you need. For example, if a client begins to threaten you with a lawsuit, you want to know your E&O insurer will stand behind you, not that there isn’t enough coverage left in the policy to protect you. Similarly, there are many nuances in E&O policies that may catch you by surprise if you haven’t uncovered them ahead of time. Here are seven common examples.

  1. Did you know that all “claims made” policies aren’t made equal? Some policy forms are a purely claims made design, while others are “claims made and reported.” The difference? The latter provide coverage only if you file a claim within the policy term or within a short period thereafter. If you try to file the claim after either of those two-time frames, you may find yourself without coverage. Solution: read your policy to confirm which type you have.
  2. Does your policy cover your specific duties? To find out, read your policy’s insuring agreement to see how it defines professional services. It will typically be quite explicit about whom and what it covers. For example, one life insurance agent E&O policy has this definition: “Coverage is limited to general agents or agents with valid licenses in a client’s state or jurisdiction, as well as the general agent’s or agent’s state or jurisdiction, and who are involved in the sale or servicing of life, accident, and health insurance, disability insurance, and indexed or fixed annuities. Covered duties also include financial planning and supervision and training of agents.” The key point? Your actual duties must align precisely with the policy language in order for you to have coverage under the policy. For example, if you have a sideline real estate business, you will not be covered under this policy because those activities aren’t listed in the insuring clause.
  3. Are you familiar with your policy’s exclusions? One of the most common ways E&O policies surprise agents is when they file a claim and the insurer tells them an exclusion applies. If this has ever happened to you, you know how infuriating it can be. Solution? Whenever you purchase a new E&O insurance policy, immediately read the exclusions list. Doing so, for example, will show you’ll have no coverage for claims arising out of litigation that occurred before the policy’s effective date or were in process on that date. Or that E&O claim payments that benefit a family member won’t be covered. Or that financial advisors will not be covered for E&O losses if they use or disclose confidential client information or non-public information. There will be a dozen or more scenarios in which you might assume coverage, but that your policy, in fact, excludes. Study your contract so you know exactly what exclusions apply.
  4. Are you aware of the nuances of coverage limits? The first is the difference between per-claim and aggregate limits. As its name suggests, the former establishes a maximum dollar amount that can be paid on a given claim from an insured. The aggregate limit refers to how much coverage is available for multiple claims from one insured in a given year. However, shared limits introduce a further complexity. Here multiple people within a firm may be covered under one master policy with a limit that applies to every agent and/or advisor insured under the policy. So if the firm suffers a large number of E&O insurance claims in a year, which consumes the entire shared limit, you will be out of luck if you need to file a claim later.
  5. Did you know that some E&O insurance policies apply the stated deductible for all claims filed in a policy period? So if you have five claims and your deductible is $1,000, you will be on the hook for $5,000. Other policies provide for an aggregate deductible for multiple claims. In the example given, this might limit your deductible to only $2,000 in E&O claim outlays in a given year.
  6. Have you heard of E&O policies that apply your deductible to legal fees as well as to claim payouts? Policies with so-called defense-and-loss deductibles make you pay for legal fees up to the deductible amount even if the claim is ultimately proved groundless. Compare that to E&O insurance policies with first-dollar deductibles, which only require you to pay if you’re found liable and a claim payout is required. Obviously, the latter type is more appealing.
  7. Finally, does your claims made E&O policy have an extended reporting period or “tail” provision? This will allow you to file a claim even after your policy expires, as long as the wrongful act happened prior to the end of the policy period. Although most E&O policies have this feature, the length of the period can vary. EOforLess’ life/health agent E&O policy has an unlimited extended reporting period. This can be important if you are planning to sell your business.

E&O insurance policies for life and health insurance agents, P&C agents, registered investment advisors, and real estate agents and broker/owners have many other nuances. To make sure your business is fully protected, carefully read your policy’s fine print. This way, in the unfortunate event you need to file a claim, you will avoid nasty surprises that put you at risk.

But here’s the good news. Many of these surprises can be avoided entirely by purchasing the right policy in the first place. By reading specimen policies before you buy, you can select one from a company that doesn’t impose restrictive provisions. Shopping carefully can literally save you tens of thousands of dollars or more at claim time. Worth the extra work? You bet!

As a financial professional, you understand why it’s important to maintain a clean compliance record. Without one, it’s hard to grow your business from among today’s skeptical prospects. But do you also know why it’s equally crucial for all of your intermediary firms to be as committed to compliance as you are? Unless your broker-dealer, registered investment advisor (RIA), and insurance field marketing organization (FMO) are as squeaky-clean as you, you may face regulatory trouble down the road.

Here’s the problem. When your intermediary firm has a checkered compliance history, they automatically become the focus of regulator attention. And when regulators become suspicious of your broker-dealer, RIA, or FMO, they tend to also become suspicious of you. This has real consequences for your ability to do business, says Jon Henschen, in a recent ThinkAdvisor.com article.

  • First, intermediaries who don’t comply with regulations or that hire agents or advisors with the same disregard spark extra regulatory sweeps and audits. These will distract their management teams and make it harder for advisors with clean backgrounds to get their business on the books and their compensation processed.
  • Second, the more regulatory scrutiny a firm receives, the more money it will spend on legal and compliance services. These costs will ultimately come out of advisor compensation—out of your wallet or pocketbook.
  • Third, when regulators find evidence of wrongdoing, they often will push for the removal of the responsible parties. If they have long tenure, their leaving will weaken the company’s institutional memory and bench strength. This may not bode well for its ability to compete in the future.
  • Fourth and finally, every time a broker-dealer, RIA, or FMO gets into regulatory hot water, it will generate negative publicity that lives forever on the Internet. As the firm’s reputation weakens, so will yours because you are tied to the firm. It’s hard enough to generate new clients without giving prospects an additional reason to question your integrity.

Solution? Do thorough research on any intermediary firm before joining it. If you’re considering a broker-dealer, conduct a thorough BrokerCheck review to uncover the scope of disclosure events among its registered representatives. Simply go to Brokercheck.finra.org, click on the individual tab, then type in the broker-dealer’s name where indicated. The result will be pages showing all the firm’s registered reps and indicating those with disclosure events. If you see “yes” in the disclosures field, click on “more details” to learn about the person’s infractions.

Now, this process can be unwieldy because there’s no way to retrieve a summary report showing the percentage of reps at a firm with disciplinary issues. Best you can do is scan the individual reports and then click on the “Yes” to see how and why an individual representative got into trouble. However, if you scan the broker-dealer’s registered representative summaries long enough, you’ll be able to see if the firm has dubious ethics.

According to Jim Eccleston of Eccleston Law, as you’re doing this, watch for disclosures that indicate:

  • Serious negligence or financial abuse of clients, including churning, borrowing from a client, forging documents, or selling unapproved products from an outside organization (selling away).
  • A pattern of paying fines for violating industry rules.
  • Personal bankruptcy or other credit-related problems that suggest the representative is financially stressed or has exercised poor financial judgment.
  • Repeated firings from prior broker-dealers and/or working for many different firms in various states over a short period of time.

It’s also important to evaluate a broker dealer’s own compliance record, not just those of its representatives. To do that, return to the main BrokerCheck page, click on the “Firm” tab, and then enter the firm name or CRD# where indicated. Hitting “search” will return the firm’s disclosure history (if any), where you’ll get a sense of its own adherence to industry regulations and business ethics.

You can do the same individual and firm-level analysis for investment advisor representatives and their RIA firms by visiting the SEC’s Investment Adviser Public Disclosure website. For insurance FMOs, your sleuthing will be much trickier because there is no single government agency or database to check. Since FMOs often operate in multiple state jurisdictions, it can be tough to get a handle on how many of their agents have run afoul of the law . . . or whether the firm itself has. Best advice: let Google be your friend.

Hopefully, researching FINRA, SEC, and state insurance compliance records will reveal whether signing with an intermediary firm is risky. If so, doing business anyway might result in you paying more for your E&O insurance. On that basis alone, it’s wise not only to do your due diligence before joining a broker-dealer, RIA, or insurance FMO, but also to take what you find seriously. No point paying more than necessary for your E&O insurance.


For information on affordable E&O insurance for low-risk insurance agents, investment advisors, and real estate broker/owners, please visit EOforLess.com. For information on ethical sales practices, please visit the National Ethics Association’s Ethics Center.

If you’re like most people, your old habits may die hard. For example, you may have started buying E&O insurance decades ago in the usual fashion . . . shopping for an agent, requesting a quotation, filling out a paper application, then waiting days or weeks for your E&O policy to arrive in the mail.

That process served its purpose for a long time. But thanks to the advent of new technology, it’s no longer the best way to buy E&O insurance. Instead, many financial professionals today shop for and buy their professional liability insurance online. Tens of thousands of them each year would do it no other way.

It’s not hard to see why. Consider the disadvantages of buying it the old-fashioned way:

  • It’s harder to identify providers of E&O insurance. Without the Internet, you’d be forced to ask friends and colleagues for referrals. Depending on their experience, you might end up with only one or several buying options.
  • Your ability to shop for the best features will depend on your agent’s knowledge. If the person lacks awareness of certain key features, then he or she might not bring them to your attention.
  • Your agent might discourage you from running “what if” scenarios, which can have a big impact on pricing, because they can be time-intensive to complete.
  • Once you select an E&O insurer and your desired coverage amounts and other policy options, you request a formal quotation from your agent who decides which carrier(s) to submit it to. This might take days or weeks based on how busy the agent is.
  • Once you receive several price quotes from different insurers, you select one and then submit a paper application to that firm. Hearing the underwriting results might take days or weeks.
  • Once you hear your policy has been approved, you pay for it, typically by sending a paper check to your agent or insurer. Postage will be on you.
  • Days or weeks later, you will receive your policy and proof of insurance. If you need additional coverage certificates, you’ll have to ask your agent or insurer for them.

If that sounds complicated, it’s because it is. Complicated and time-consuming. Using an analog process, it often took days or longer to shop for and purchase E&O insurance. In light of this burden, is it any wonder so many agents went uninsured?

Now, let’s consider the contemporary online alternative:

  • To shop for E&O insurance, you simply enter an appropriate search term into your Internet browser application. The leading online E&O providers generally appear on page one of your search engine results. Click on the ones that interest you to learn more about their firms and offers.
  • Based on your needs, click on the type of E&O protection you’re interested in. For example, if you’re a life agent, select the coverage for life and health insurance professionals. If you’re a P&C insurance agent, RIA, or real estate agent or broker-owner, select the coverage that fits your license and professional duties.
  • Once you’ve drilled down on coverage type, take a look at the pricing and read the provider’s explanations and disclosures. Most will have specimen policies available for downloading, so you can carefully check specific provisions.
  • If the policy meets your needs, provide the firm with your personal and firm information, answer the underwriting questions, and decide on how you’ll pay for the policy. You’ll provide all of this information via online forms that are easy and quick to fill out.
  • After you’ve submitted your electronic application and payment information, wait a minute or two for the provider’s e-commerce platform to process your personal and payment information and then provide your insurance certificate.
  • Finally, print out your certificate for your files and for any insurance FMOs, securities broker-dealers, or registered investment advisors you work with, now or in the future.
  • Depending on the payment method you select, your checking account or credit card will be billed automatically. And when your policy period expires, you’ll be reminded to renew your policy, typically via an e-mail.

Bottom line? The old-fashioned method is more complicated and takes a lot longer than the online method. In this day and age, when time is at a premium, it no longer makes sense to shop the old way. Savvy financial professionals use the Internet to buy E&O insurance because it’s the quickest, most efficient, and easiest method available. If you’re not among them, ask yourself why and consider becoming a modern shopper next time.

When you’re ready to make your move, visit EOforLess.com, sponsor of E&O insurance for financial professionals since 2008. We’ll lay out all your options, walk you through the buying process, and generate your coverage certificate in just a few minutes, not days or weeks. Isn’t it time you bought your E&O insurance the contemporary way from the firm that invented online E&O buying . . . EOforLess.com!

Warn Your Clients Now: FINRA Does NOT Guarantee Investment Opportunities

The ingenuity of investment scammers has no limits. Now they are invoking the names and logos of regulatory agencies in order to entice their victims—your clients—to part with their hard-earned cash.  To help them stay safe, caution them to watch for solicitations that use a regulatory tie-in to promote an investment’s safety.

In a recent case, fraudsters used FINRA’s name and logo in correspondence, including a phony signature from FINRA’s top executive—to create the false impression it guaranteed the performance of what was actually an advance-fee scam.

“Financial fraudsters go to great lengths to appear legitimate, making it difficult for investors to recognize their ruses,” says Gerri Walsh, FINRA’s Senior Vice President for Investor Education. “That’s why we are telling investors flat out that FINRA does not guarantee investments, and our officers play no role in facilitating investment opportunities. We want people to know that and to understand how they can verify who the real FINRA is.”

According to FINRA, advance-fee scams typically involve criminals enticing consumers into sending in funds to pay for administrative or regulatory charges relating to a stock share buyback, which is either worthless or under-performing. Once investors send their money in, they never see it again or receive any returns from the stock buyback.

One way for your clients to stay safe from such schemes is to carefully examine solicitations for telltale signs of fraud. These include the use of quasi-legal language, repeated use of the word “guarantee,” and failing to correctly identify the regulator or its executives.

In a FINRA Investor Alert on regulator scams, the agency pointed to a recent attempt to defraud an investor. The scammer emailed the person a document supposedly from the FINRA CEO in an effort to build trust. Close inspection of the letter revealed improper use of the FINRA logo, incorrect executive titles, repeated use of the word “guarantee” (something FINRA would never do), and reference to the Financial Securities Rule-Making Board (FSRB), a fake agency.

In another fraud, scammers sent email pitches that purported to come from the office of FINRA President and CEO Robert Cook. They portrayed FINRA as a “recognized financial manager of the IMF” (false) and informed recipients that it has granted the release and payment of outstanding inheritance funds. The catch? The investors needed to fly to another country. But before they could, they needed to send in more personal information and a copy of their passports. Those who did would be at high risk of having their identity stolen, FINRA said.

How to help your clients avoid advance-fee, phishing, or other types of investment frauds? Encourage them to view every solicitation skeptically, watching for typos and other scam tipoffs. And they should be wary of any offer that touts guarantees or otherwise sounds too good to be true. If they’re not sure the offer is legitimate, encourage them to run it by you. Or they can use FINRA’s Scam Meter here.

To help your clients learn more about investment scams, send them to FINRA’s “Avoiding Investment Scams” page here.


For information on affordable E&O insurance for low-risk insurance agents, investment advisors, and real estate broker/owners, please visit EOforLess.com. For information on ethical sales practices, please visit the National Ethics Association’s Ethics Center.