Professionals continue to grapple with E&O.

Don't need it. Don't want it. Don't think I can afford it. Don't see the point of it. Don't think it will really provide coverage when crunch time comes.

That's the approach of some financial advisors and planners to the question of errors and omissions insurance coverage. They believe that it is unnecessary. These uninsured advisors, one insurance executive says, run in the thousands.

"I peg it at upwards of 50% of all financial planners," claims Bud Bigelow, managing general agent of First Specialty Insurance Corp. Asked for studies or documentation of this number, Bigelow conceded that he had none. Nevertheless, he pointed to his personal experience as an official of one of the biggest errors and omissions carriers in the financial advisor industry.

"I can't document it all, but I can tell you that many people come to us to buy insurance who have never had it before. In fact, this is a very frequent situation that we encounter," says Bigelow.

Mark Goldberg, president of Royal Alliance Associates in New York, calls Bigelow's 50% uninsured estimate "an exaggeration." Nevertheless, he says that the lack of E&O coverage is extensive and frightening. He notes that there are entire firms that can't obtain the coverage.

Many advisors, even those who have it, are skeptics about what the insurance companies are including in their products. "It's too expensive," says a veteran financial planner who didn't want to be named. This certified financial planner, who has a national reputation and runs a one-person practice, said he pays $6,000 to $7,000 a year for errors and omission coverage.

"The policy is coming up for renewal, and I expect that it's going to cost a lot more," he says.

"There's obviously a lot of planners who don't have insurance. It is a big problem," says Steven Kanaly, a fee-only advisor who has his own trust practice in Houston. Although he couldn't cite any studies, he believes Bigelow's figure of those not carrying coverage "might actually be higher."

Obviously there is a problem. Why?

Several practitioners and executives say many professionals find E&O difficult to obtain, or the effectiveness of the coverage to be problematic.

One advisor, whose high-net-worth practice uses alternative investments, says his business sometimes "has to go naked." He adds, "Insurance companies just won't offer the coverage we need."

Another advisor, Ronald Rutherford, a certified financial planner in Naples, Fla., whose average client has a net worth of $5 million, says he has been searching "for two years for a carrier that will cover alternative investments." Rutherford says carriers repeatedly tell him these investments "are too risky."

Another certified financial planner said creditable professionals are hurt by the sins of those with low standards. "The problem is that there are not enough fee-only advisors. And there are too many unregulated advisors who are taking commissions and are causing most of the lawsuits. Because of them, it is difficult for all of us," according to Kanaly.

Other professionals believe that good advisors can self-insure. They believe that any problems that come up in the course of a practice-especially a practice that is based on fee-only principles-can be settled without the help of an insurance company. That's because most of the problems of the financial advisory industry come from the lack of independence in product selection, these professionals believe.

Not so, say many some planners and insurance executives. "Self-insurance has many problems. You inevitably have representatives who start to argue with you about what is covered and what isn't," says Goldberg. Royal Alliance's approximately 2,700 reps have an outside carrier.

Goldberg believes that every rep must have coverage and that firms should use third parties to provide the coverage. He also stresses that every rep should ask for an abstract of the E&O coverage that the broker carries. That's so the rep knows if the coverage comes from a third party or is provided by the brokerage. Many reps don't realize that their firm is insuring them, Goldberg warns.

A Securities and Exchange Commission spokesman said the regulator hasn't studied the problem of uninsured advisors. "Check with the NASD," the spokesman said. "We don't have any information on this," according to a spokeswoman for NASD.

Many insurance executives and planners contend that, regardless of the controversies surrounding these policies, the average professional has no choice.

"It just makes business sense to carry this kind of coverage," said Dale Brown, the chief executive officer of the newly created Financial Services Institute, a broker-dealer organization that is affiliated with the FPA. "It is so easy for anyone to be sued today."

This is a point that is constantly made by the insurance industry, which is pushing E&O policies.

In a litigious world, E&O coverage is needed for "anyone who gives advice, makes educated recommendations, designs solutions or represents the needs of others," declares an online advertisement by the Hartford. And specializing in certain kinds of planning practices will not insulate an advisor from these kinds of risks, says Bigelow of First Specialty. "Because you are a fee-only advisor, there is no basis whatsoever for believing that you can't be sued," he says.

Some advisors believe that carrying these policies will increase the potential for lawsuits, and others believe that if they are independent and if they don't accept commissions they will not be sued, Bigelow argues.

"The incidence of lawsuits against fee-only advisors isn't less than it is for commission advisors. Some of our largest claims have come against fee-only advisors," he adds. In a typical year, Bigelow says, 3% to 5% of those carrying these policies will have some kind of dispute, and the rates rise to 6% or more in a bear market.

Ellen Turf, chief executive officer and executive director of the 1,100 member, fee-only planner group the National Association of Personal Financial Advisors (NAPFA), says it is a complex question. Turf agrees that even fee-only planners need coverage because they can be sued.

Still, the issue of E&O isn't as easy as saying that protection is a good thing so one should obtain it. First, there is the issue of quantity-there are so few carriers. Most planners say they knew of two or three. And there is also the issue of quality; many professionals with coverage wonder if they're protected by these policies when they have a dispute.

David Drucker, an advisor in Albuquerque, N.M., has reduced his practice from 45 clients to just five high-net-worth clients and from $65 million to $15 million of assets under management. Yet Drucker says that he still needs insurance.

"We have also heard a lot from our [NAPFA] members that these policies often have so many exclusions that there would be no point in carrying them," Turf noted. On this point Drucker, an E&O advocate, cautions that the answer is not for the planner to self-insure.

"If you go that route, then you're going to have to document everything that you do and every single thing that the client says. Most planners are not going to be able to do that," Drucker warns.

Nevertheless, Drucker concedes that critics of these policies also have their points. "It is very difficult to get coverage for those advisors who are working with clients who have alternative investments," he says.

The problem, he notes, is that no two planners have quite the same practice, so many different kinds of coverage are needed. And Brown, another executive who recommends that every professional carry coverage, says that coverage can be so expensive that some planners or reps pass on it.

Policies can also be so narrowly constructed that they are unlikely to protect a planner who faces a complaint. They often have limits that are not understood, explains Goldberg. Once these limits have been reached, the advisor or his firm can be on the hook. "The rep must know what he has. Many don't," Goldberg warns.

However, for some successful firms the premiums are so high that "it may make more sense just to forget about the coverage," says Kanaly. He notes that his firm, Kanaly Trust Co., with almost $2 billion in assets pays upwards of $100,000 a year (with a $500,000 deductible) for its E&O coverage.

Bigelow agrees that these flawed policies exist. But he says a good policy should have a clause that calls for the company to have "a right and duty to defend the entire claim indivisibly."

He says this clause requires the company to defend a professional if any one count falls under the right to defend. Then the whole claim must be defended by the insurance company. If this right to defend is not included in an E&O policy, Bigelow adds, then the insurance company will be able to trigger exclusions that will allow it to escape the payment of any damages, or a substantial part of them.

Are financial advisors who don't have protection living dangerously? That's for each advisor to decide. But for many advisors, here is, without a doubt, the wrong answer: don't know.