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Applications & Forms for Financial Advisor Insurance Products.
Investment Advisors and Consultant’s Errors & Omissions (aka Professional Liability) policy protects advisors and consultants against losses due to any actual or alleged negligent act, error or omission committed in the scope of their duties as investment counselors/advisors.
Investment Advisors ERISA Bonds
ERISA Section 412
Section 412 under ERISA states every fiduciary of an employee benefit plan and every person who handles funds or other property of such a plan shall be “bonded” against fraud or dishonesty.
The term “handling” carries a broader meaning than physical contact with plan funds or property. In other words, a person is deemed to be “handling” funds or property when their duties or activities carry a risk that the funds could be lost in the event of fraud or dishonesty, whether acting alone or in collusion with others.
We have already noted that every fiduciary of a funded employee benefit plan has to be bonded under section 412 of ERISA. As noted by some ERISA attorneys, “A person who advises a plan as to the investment of plan assets, but does not have discretionary authority, will be a fiduciary if the advice is provided on a regular basis and is customized to the particular needs of the plan.”
Furthermore, “bonding is required regardless of whether the fiduciary has custody of, or otherwise actually handles assets of the plan, because the bonding rules apply to all plan fiduciaries that have these rights or powers, exclusive of the stated exceptions.”
Does this mean that all 3(38) and Full Scope 3(21) fiduciaries need to be bonded?
According to Brian Hubbell, Principal of Hubbell Consulting, LLC, unequivocally “YES”. This was supported by direct conversation with DOL.
An Investment Advisors ERISA bond is a specific bond written for investment advisors and is required of all ERISA Fiduciaries under ERISA Section 412. Investment Advisors are required to have this bond with limits of a percentage of assets under management, up to a maximum of $500,000* for each qualifying plan.
Bonds can be written on an individual basis, where each plan is identified, or written as a blanket bond covering all plans. The Underwriter will review the following information:
– Sample investment management agreements identifying the custodial authority of the funds
– Name of the Plan
– Type of Plans
– Assets under management
Notes:
1. ERISA plans should require third party vendors who handle plan funds to provide a copy of a current ERISA bond with the individual plan named as evidence of insurance.
2. Most bonds will automatically cover new clients added during the year at no cost Investment Advisor
3. ERISA bonds are sometimes also called 3rd Party Fidelity Bonds
* Under the The Pension Protection Act of 2006 bonding limits may rise to $1,000,000