Is your investment adviser insured?


All investing entails some risk. Some investors are comfortable with more risk, while others prefer to keep it minimal. Comfort and trust are also key to your relationship with your adviser. You will likely do a great deal of research when you choose an adviser to handle your money and one question you should ask is about their insurance.

Do they have insurance?

All registered investment advisers (RIA’s) and their activities are regulated by the federal Investment Adviser’s Act. But that law does not require them to carry insurance. Neither does any New York law.

Despite the lack of a requirement, they should have what is known as errors and omissions (E&O) insurance. This can be a signal to you, the investor, that the RIA or their firm are serious about their business.

E&O insurance provides coverage for both honest mistakes and other forms of misconduct. Negligence, breach of their fiduciary duty and failure of the firm to properly supervise their advisers are all instances which can give rise to a legal claim by the investor. RIA’s must act at all times with the interests of the investor as their primary goal. They must remain loyal to the investor and work within the confines of the investor agreement.

When an adviser fails in their duty to the investor and causes them damage, it may be necessary to bring a lawsuit against the adviser or firm. Although insurance may not cover every type of misconduct, such as willful fraud, having it helps you know there will be a source to draw from to compensate you and make you whole again.