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.

First « 1 2 3 4 » Next