Investment advisers work hard to build their businesses, so it’s vital to protect their firms from catastrophic losses that can arise from unexpected regulatory actions or lawsuits. Whether it’s a trade error, an allegation of a breach of fiduciary duty, the failure to disclose important information to clients, or a formal regulatory investigation (like an SEC enforcement action), professional liability insurance (often called errors or omissions coverage or E&O insurance) is a vital tool used to cover costs and expenses associated with investigating, defending, and settling any such actions. Yet, an adviser’s failure to adequately understand and properly negotiate the coverage being procured can lead to troublesome surprises down the road if a claim arises. In this article, we will highlight the six most common mistakes that advisers make when procuring E&O coverage and how to avoid such mistakes.
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