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Many people need to realize the risks of being financial advisors because the job is somehow only giving financial advice. It’s not that simple. They also need high-level integrity and honesty to operate their job professionally with total transparency. So, they may need professional indemnity insurance for Financial Advisors. 

Financial advisors are significantly at risk for suggestions that are negligent in considering inappropriate use of client personal information, failure to execute transaction risks, breach of trust, loss of documents, to changes in regulations for a long time. This is what makes a financial advisor used by clients.

If you work in this field, ensure you have indemnity insurance to protect yourself from lawsuits from clients who might find yourself in trouble. Check this professional indemnity insurance for financial advisors below. 

Why Financial Advisors Need Professional Indemnity Insurance? 

The lifeblood of clients is financial advisors. Regardless of the financial advisor’s fault, if the client loses money, the consumer can sue him. Even clients can sue you if they are unhappy with your services.

For example, when financial markets fluctuate, the resulting financial loss may encourage an unhappy customer to call their attorney. Lawsuits are stressful and time-consuming. 

However, having a professional indemnity insurance policy can offset the potential burden. Preparing for the unexpected is how to make your business successful; that’s where professional liability insurance comes in.

Coverage Professional Indemnity Insurance for Financial Advisors

You can get several protections when you have indemnity insurance for financial advisors. The following is the protection you can get when you have indemnity insurance for financial advisors.

1. Breach of Duty

While this is highly undesirable, an individual or professional may breach his duties. Of course, this violation will result in losses for other people because there are standards that are not met, and someone must replace them. Insurance can protect you through coverage to prevent massive expenses. 

2. Errors and Omissions

Like violations of obligations in their duties, financial advisors can also make mistakes and negligence. Sometimes, a financial advisor can also make mistakes in providing information that causes financial failure for their clients. This failure can also cause costs to be incurred. Indemnity insurance can compensate for it for you.

3. Lost Documents

Documents are very crucial in a business, including as a financial advisor. Indeed, losing this document could lead to a significant error and put the client in jeopardy.  Insurance usually offers coverage to recover lost documents from solving this problem.

4. Slander

A financial advisor will not be separated from defamation. Professional indemnity insurance can protect you from libel. This involves compensating the client when a professional publishes a false statement about something or the client himself.

5. Breach of Confidentiality

Breach of confidentiality is one of the things that can happen when you work as a financial advisor. This breach of privacy often occurs without consent. Such reckless actions can be wrong for the business or, even worse, financial loss for the client or yourself.

Therefore, professional indemnity insurance for financial advisors provides the best protection against intentional or unintentional breaches of confidentiality.

How Much Professional Indemnity Insurance for Financial Advisors? 

Independent financial advisors (IFA) face insurance costs depending on the ‘rate’. The rate refers to the risk factors faced during business; the percentage reaches more than the usual range of 1% to 5% of turnover. However, each financial advisor will cater to different factors.

Independent financial advisors face a variety of risk factors that are different from those working in a company. Thus, there will be a thorough assessment to decide which policy is best received. In addition, insurance providers provide a minimum premium that insurance companies can choose.

The Financial Conduct Authority (FCA) has required all companies to carry a specified minimum level of professional damages for single and aggregated claims.

The minimum levels are EUR 1,250,000 for a single claim and EUR 1,850,000 overall. However, it is your employer’s responsible for taking out adequate professional indemnity insurance.

For UK-based companies, these minimum requirements are translated into sterling and must meet the cancellation policy and renewal dates. Companies must ensure they have the following:

• Continuing coverage from the start of your authorization;
• The excess of the policy is not higher than the specified minimum level; and
• Protection in connection with Financial Ombudsman Service (FOS) awards.

The FOS award limit increased from £150,000 to £350,000 on 1 April 2019. In addition, The Chartered Institute for Securities & Investment has forewarned the FCA about the unintended consequences for the SME group members. 

Any particular IFA professional indemnity insurance broker does not recommend by The FCA. However, they provide a list of distributors who have approved their publication.

What Does Professional Indemnity Insurance Exclude?

Indemnity insurance sounds very reliable, but they also have some limitations. This usually involves other than business errors or negligence during that time. For example, insurance does not cover employer liability, bankruptcy, product liability, and vehicle insurance matters.

In addition, insurance rarely provides coverage for penalties, injuries, fines, and financial loss involving pollution, radioactive contamination, and war. 

How to Get the Most Competitive IFA Insurance?

The IFA company must start the renewal process on time and must be before the expiration date. We recommend you provide a copy of your application’s compliance procedures to obtain the most competitive IFA professional compensation. 

Underwriters want to see robust processes and controls to identify, assess, and mitigate potential risks. Preferably this includes:

• details of external compliance specialists;
• details of your file audit process;
• a copy of your complaint list; and
• biography and qualifications. 

Claims are sometimes unavoidable, but this should be detailed in a claims schedule highlighting any precautions to prevent a recurrence.

Are You Ready To Get Indemnity Insurance for Financial Advisors? 

So that’s all about professional indemnity insurance for financial advisors. This type of insurance may be hard to get because the target customers are specific. But you can still find the best indemnity insurance suitable for you. Then, ensure to get the best service and save yourself from any unwanted events and parties.