Fiduciary Insurance is designed to protect Plan Sponsors against allegations of breach of their fiduciary duty. Fiduciary Insurance is “first party” insurance, which means it is purchased by the named fiduciary, or Plan Sponsor, of a company ERISA plan.
Investment Advisors, Third Party Administrators, and other financial professionals are “third parties” to the ERISA plan, and fiduciary coverage for third parties would be part of their Errors & Omissions policies.
So, why should Investment Advisors and other financial professionals be concerned with informing their clients about Fiduciary Insurance?
Demonstrate your Knowledge and added Value
By providing your clients with this beneficial information, you demonstrate your knowledge and added value. The education you provide beyond your standard services demonstrates your interest in their success.
As a “fiduciary” to your clients, it is your responsibility to look out for their best interest. If you have knowledge of an insurance product that can personally protect the fiduciaries of an ERISA plan it would be prudent to inform them of the availability of that product.
In today’s litigious society it’s a fact that you don’t have to do something wrong in order to be sued. If your client has an insurance policy in place that can protect them for allegations of a breach of fiduciary duty, then they may be less likely to pursue litigation against others to find coverage. In addition, for their “first party” insurance to subrogate against you, they would be required to prove actual negligence which is a higher legal standard.
How to inform your clients
McGowanPRO has created a “Fiduciary Acknowledgement” Form which you can use to inform your clients about fiduciary insurance. It is intended to be a general overview of the insurance coverage, provide them direction where they can learn more, and be a record of your notification to them.