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Many Americans dream of being in business for themselves. In financial services, tens of thousands of life insurance agents, financial advisors and planners, and securities brokers decide to hang their shingles each year. They’re all in search of autonomy, financial growth, and the satisfaction of doing good work for their clients.

If this applies to you, you probably remember how exciting it was when you pulled the trigger and launched your business . . . getting new stationery and cards, equipping your new office, going out on your first sales meeting, and closing your first sale. The best part? Getting your first commission check!

However, with all that excitement, you may not have considered some of the downsides of launching your new venture—the expenses required to set up your firm, the long hours needed to find prospects and close sales, the intense study required to master your product line, the effort to comply with state and federal rules and regulations.

One of the biggest downsides of all: the unique E&O risks that start-up businesses face. Which makes it crucial that financial advisors learn about—and buy—errors and omissions insurance.

Three Major E&O Start-Up Risks

So what risks are we talking about? There are three major ones.

First, new financial professionals typically enter the business with a knowledge deficit. If they’re coming from a totally unrelated field such as teaching or from a corporate job, they’re starting from ground zero in terms of knowledge. They don’t know how to initially approach clients. They lack knowledge about how to best assess financial needs. They’re still in the process of learning about the technical workings of life insurance, annuities, and investment products. Most importantly, they’re not fully aware of how state and federal regulations constrain their actions—and what the costs are for violating those rules.

If the person starting out has some related financial experience—say, as an accountant or as a customer-service person in a life insurance company—the learning curve might not be as steep as if they were totally green. But the point remains that the amount of knowledge needed to break into and then ultimately succeed as a financial sales professional is immense. Which means any lack of knowledge increases the odds of making a mistake . . . and getting sued. Errors and omissions insurance is an essential backstop for start-up professionals who have good intentions, but may lack the knowledge and experience to avoid costly mistakes.

Second, start-up agents and advisors typically start out with a low base income. They need to close a lot of cases, fast, in order to generate an income they can live on. Plus, since they’re typically early in their careers and may have young families, their cash needs might be quite high, but their net worth low. With the average cost of a life insurance-related errors and omissions claim being roughly $40,000, according to a major errors and omissions underwriter, the financial impact of losing a client lawsuit can be devastating. It’s the kind of blow a start-up professional might never recover from and for which the only remedy is bankruptcy. Here again, having a high-quality errors and omissions policy in force can spell the difference between weathering a business storm and getting swept away by it.

Third, new financial advisors typically have, well, a new client base. That means their customers won’t know them very well and may not have lived through the market ups and downs with them. This means advisors may not yet have established a reservoir of client trust and good will. If they make a mistake that harms their clients financially, their customers may not be willing to give them the benefit of the doubt. Their first impulse might be to sue the person rather than work things out. In this case, being insured with errors and omissions insurance is yet another financial safety net for a start-up professional.

In short, launching a new business can be difficult and risky enough without also being unprotected against client lawsuits. Most new agents will never have a problem client and will never get sued. But a small minority will, and the results can be incapacitating from a financial point of view. Are you willing to “bet the ranch” that your new business will never face such a client? If not, now is the time to consider buying high-quality, affordable errors and omissions insurance, designed especially for your business, from the pioneer in online E&O, EOforLess.

There are two reasons life agents should carry E&O insurance. The first has to do with them. The second has to do with their clients. Let’s take a closer look at each perspective.

Life Agents Buy E&O Insurance for Themselves

The reason life agents buy E&O for themselves is because what they do for a living is inherently risky. Think about it. Every day you help clients deal with complex financial matters involving potentially tens of thousands or even hundreds of thousands of dollars. In fact, when an affluent client buys life insurance to fund an estate transfer, literally millions of dollars can be on the line. Making a mistake or forgetting to do something that botches such a transaction can leave you susceptible to potentially career-ending lawsuits.

Another reason life agents need E&O for themselves is because they often work with older clients who may have cognitive impairments. Such clients may authorize a purchase that their children find unsuitable. When this happens, the clients’ beneficiaries, who often stand to inherit large estates, are not shy about making their views known. Worse, if they think the agent took advantage of their ailing parent, they will not hesitate to file regulator complaints or even sue a life agents.

And let’s not forget today’s unsettled regulatory environment, especially around the U.S. Department of Labor’s Fiduciary Rule. Although the rule went partially into effect on June 9, 2017, it might still be revised, watered down, or cancelled prior to its full effective date on January 1, 2018. Until then, life agents who sell retirement products will be expected to serve a client’s best interests. And if they don’t, they run the risk of clients and their attorneys suing them for breach of fiduciary duty.

Finally, let’s not forget that many life agents work in home-based offices, either for themselves or for a life insurance agency. In either case, they may lack dedicated administrative support. This means they have to handle all their own paperwork, including the filling out and filing of life insurance applications. Because sales, not paperwork, is their forte, life agents who work alone may make mistakes that create E&O liability risks

Put the above factors together and what do you have? A compelling reason for you to buy E&O insurance to mitigate your business risks. But equally important is the need to buy E&O insurance for your clients’ sake.

Life Agents Buy E&O Insurance for Their Clients

Although it’s human nature to assume one will never make a mistake, the fact of the matter is mistakes happen, even to the most experienced life agents. And if the worst comes to pass, ethical life agents realize the importance of both protecting their businesses against legal claims and making their clients whole financially. They are rewarded for this because people would rather do business with agents who take responsibility for their mistakes rather than those who shirk responsibility in order to save money.

In short, life agents who wish to build and maintain a sustainable practice know they must always be selfish and selfless when it comes to E&O insurance. They must protect their own financial interests so they can continue to work in their business, while at the same time being responsible for any harm they cause to their clients. The beauty of E&O insurance is that it allows life agents to cover both bases for a reasonable cost, for as long as they keep their E&O policy in force.

In today’s busy, stressful world, any product that helps the seller and the served as powerfully as E&O insurance does is a product worth having, especially if it builds trust as well.

So here’s the bottom line. Are you in the market to buy E&O insurance for the first time or looking for an alternative to your current E&O coverage? Then consider the benefits of buying from EOforLess, an online source of affordable and convenient E&O since 2008. EOforLess specializes in meeting the needs of life agents with quality protection at a low cost, making it a huge win-win for both them and the clients who trust them.

The Era of the Handshake Deal is Long Gone

Sad to say, the era of the handshake deal has passed. Decades ago, it took only a signature and a handshake for a financial professional to close a sale with a prospect. Those were the days when a person’s word meant something. Advisors would do their best to make suitable recommendations, clients would accept those recommendations in good faith, and a handshake would ratify the advisor/client relationship, which often lasted an entire lifetime.

Boy, have things changed! Now, closing a sale requires jumping through numerous compliance hoops. Both advisor and prospect must sign multiple forms: replacement, risk profile, suitability, and soon, family contact (for reporting of suspected senior abuse). All of this dotting of I’s and crossing of T’s has made the sales process more legalistic and adversarial. Result: the implicit trust financial professionals and their clients quickly established is now more fleeting. In short, the assumption today is that each party, given half an opportunity, is out to victimize the other, and that each has to adopt a defensive posture from the outset.

It gets worse. This compliance process makes the sales process longer and more complicated. And it gives prospects more opportunities to back out. But there’s an even larger issue at stake. By making the sales process more legalistic, companies have trained consumers to expect the worst. And when mistakes happen, consumers are more likely to feel aggrieved and to take legal action.

For this reason, even though they may feel their clients are reasonable, financial professionals must protect themselves against risky individuals who react negatively to problems real or imagined. This means purchasing high quality, affordable errors-and-omissions insurance from firms such as EOforLess.com, which works with financial advisors.

What Does an Errors & Omissions Policy Protect You Against?

Errors-and-omissions insurance is the answer for financial professionals who wish to build a sustainable business in this environment. Because there are more angry clients and lawsuits these days, advisors simply can’t afford to go uninsured.

What does an errors & omissions policy protect you against? Simply put, it generates funds that help advisors deal with the aftermath of making a mistake (or failing to act) that harms a client. Policies are designed to provide cash to hire an attorney to defend you and to make good on any judgments or settlements that emerge from a judicial process. They also pay for court costs and the fees incurred in finding and retaining expert witnesses.

Now, you may be thinking, “I know how to do my job and the chances of my making a mistake are slim.” We have two responses to that.

First, financial professionals are human, and as such, susceptible to making errors, period. They have lots of things on their plates and might forget to handle an important transaction for a client.

Second,  one of their staff members might drop the ball, financially harming a client. The possibilities are endless. For example, life and health insurance agents might recommend the wrong annuity for an elderly client or fail to stay on top of a customer’s changing needs for life insurance. Or they might neglect to execute a client request, which ends up costing the person money.

Similarly, on the property-casualty side, there are countless ways to make a mistake, including failing to . . .

  • secure appropriate coverage,
  • recommend policies with adequate limits, or
  • properly explain coverage exclusions or policy limitations.

Whatever the mistake, and whatever your license type, the combination of existing advisor/client chemistry, client anger, and financial loss can quickly explode into a damaging lawsuit. When this happens, you need an errors-and-omissions policy (and insurer) to preserve your precious financial assets.

Protect Yourself Against Negligence Claims

Given the high number of risks for getting sued today, it’s imperative to protect yourself against negligence claims. How? By assessing your needs for errors & omissions insurance and by selecting an affordable solution that meets those needs. As a first step, we recommend evaluating the policies available from EOforLess.com, an online shopping service for financial professionals.

Unlike working with a traditional E&O insurance broker, which involves filling out complex applications and waiting days or weeks for the broker to secure a quote from several insurance companies, buying errors & omissions from EOforLess.com typically takes 5 minutes or less. You simply . . .

  • visit our user-friendly website,
  • select your policy type and desired insurance coverage amount,
  • complete the application,
  • pay for the insurance, and
  • immediately print out your proof of insurance.

Nothing could be easier than purchasing E&O insurance from EOforLess.com.

In summary, everyone wishes the “good old days” came back—a time when advisors and their clients trusted each other and sealed deals with a handshake. But that time is gone forever. Now, consumers must do adequate due diligence on their financial advisors, and advisors must protect themselves against litigious clients. For financial professionals, this starts with protecting their current assets and future earnings potential with errors & omissions insurance.

The risks of errors & omissions are real. Despite the human tendency of assuming that bad things always happen to other people, the chance of an unhappy client suing you is high. And the fallout of losing in court can range from paying a minor five-figure judgment to cleaning out your life’s savings. The point is this:  if you’re serious about building a business with long-term value, don’t let errors & omissions bankrupt you.

The solution isn’t hard to see: buy a high quality, affordable E&O insurance policy to transfer your risk to an insurance company. Doing this also converts a potentially large and unknown cost to one that is predictable and manageable: monthly, quarterly, or annual E&O insurance premiums.

Now, as with all forms of insurance, the devil is in the details. Spend the time to consider your options. Look at various insurance company offerings, focusing on their insuring clauses and exclusion lists. You also want to select a policy that works for your type of business and license type and that offers liability limits sufficient to cover potential payouts to your largest clients.

Buy E&O Insurance Online

And don’t forget to do your due diligence regarding all the entities involved. In the group or affinity marketplace, these typically include:

  • A sponsoring association,
  • An E&O insurance marketing firm/website,
  • An insurance third-party administrator, and
  • An insurance company.

If you’re considering buying group E&O insurance coverage, first take a look at the sponsoring organization. Many financial-professional trade associations offer E&O insurance for an extra fee as an ancillary membership benefit. Here, you want to make sure the association understands the needs of its members and has selected insurance partners who know what they’re doing. You also want an association with staying power; if it folds after you join and buy insurance—and your E&O coverage isn’t portable—you may be left with an E&O coverage gap. This can lead to problems if you suffer a loss during this period and your future E&O insurance refuses to cover your claim. National Ethics Association, sponsor of EOforLess, has a long track record of offering E&O insurance, launching its first product for life insurance agents in 2008.

Sponsoring organizations often partner with marketing entities to spread awareness of their plans and encourage prospective buyers to sign up. The National Ethics Association’s marketing resource is EOforLess, which provides an online shopping platform called EOforLess.com. A big consideration: make sure the marketing entity makes it quick and easy to shop for insurance. It should let you compare various options and then conveniently apply and pay for your coverage online. At EOforLess.com, most financial professionals can select a policy, bind, and print their certificate of coverage in just a few minutes.

Working in tandem with the sponsor and marketing firm, insurance third-party administrators (TPAs) handle the backroom functions of enrollment, billing, and customer service. It’s generally preferable to have a sponsor farm out administration to a highly capable specialist rather than attempt to do it in-house. That’s because a TPA will work with multiple sponsors and buyer pools, which gives it the scale to build or buy appropriate technology. It also give it the ability to house a large team of experienced customer-service representatives.  Most trade associations find it difficult to handle both of these functions internally, while still providing their core member benefits.

Clearly, since the insurance company is the entity that assumes your risk and is responsible for paying your E&O claim, focus most of your research on it.

  • Consider its A.M. Best rating as well those from other ratings agencies. Make sure the company falls within the top one or two grades, which indicates it will have the long-term solvency to stand behind its policies.
  • Check out its track record in the E&O marketplace. Is it an established player or a newcomer?
  • Determine if its E&O premiums have remained stable or whether it buys market share with low premiums, then increases them later?
  • See if it understands the risks of your specific profession and knows how to price for that risk?

Finally, solicit the opinions of other financial professionals who may have dealt with the firm in the past. Post queries on social-media communities such as Facebook, LinkedIn, and Insurance Forum to see whether people are satisfied with the firm’s customer service, especially with how it handles claims paying.

Bottom line? E&O insurance is your best protection against unforeseen disasters. But don’t buy coverage from just any association and marketing firm. Also, don’t assume that all third-party administrators and insurers are the same. Do your due diligence to buy the protection you really need at a price you can afford. We hope that after doing your homework, you’ll decide that the National Ethics Association and its marketing affiliate, EOforLess, are the firms for you. Good luck!