Coverage Gaps with Some E&O Policies: An Interview With Tom Schrandt

Recently Tom Schrandt, Vice President at Lockton Affinity and Producer of the Lockton Affinity Advisor business, sat down with NAPA Net the Magazine, the official magazine of the National Association of Plan Advisors, to discuss an important topic—the coverage gaps that retirement plan advisors can risk with some Errors and Omissions (E&O) insurance products.

Countless E&O products on the market do not address the increased risks and vulnerabilities today’s advisors face, including new ERISA law requirements, increasing cyber exposure and the reality of an ever more complex and litigious field.

However, through Lockton Affinity Advisor and the American Retirement Association’s partnership, the E&O policy administered by Lockton Affinity fills these gaps.

Read on for a version of the original NNTM interview below.

What Is Lockton Affinity?

TOM SCHRANDT: Lockton Affinity is one of the nation’s leading program administrators, managing insurance solutions for groups of 100 to more than four million members. As part of Lockton Companies, the largest privately held insurance broker in the world, Lockton Affinity specializes in insuring small businesses, non-profits, associations, groups and franchises.

A large portion of the groups and businesses to which we provide comprehensive insurance solutions and risk management strategies include attorneys, certified public accountants (CPAs) and other financial professionals—RIAs, broker/dealers, TPAs, record keepers, fiduciaries, trustees and life agents.

What’s Different About the Policy Developed for NAPA Members?

SCHRANDT: Our Professional Liability coverage was designed specifically with NAPA members in mind. Unlike most insurance offerings available in the current marketplace, our policy includes Professional Liability, industry-leading Cyber Liability and Fiduciary coverage to meet ERISA standards and ensure any fiduciary duties you perform are also covered.

Lockton Affinity can also help place your other business insurance needs like Workers’ Compensation, Business Owner’s Policy, Commercial Auto and more.

We also have a dedicated team of professionals who specialize in working with RIAs, registered reps and life insurance agents to answer your questions, guide you through the insurance buying process and ensure you have the coverage you need to protect your business and your livelihood.

Why Is This Kind of Coverage Needed?

SCHRANDT: Unfortunately, we live in a very litigious society, and quite frankly, plan advisors get sued. Making matters worse, plan advisors are held to the stringent requirements of ERISA law, opening up plan fiduciaries to be sued for their personal assets.

Plan advisors provide a highly specialized professional service to their clients. The generic “investment advisor” E&O policy available on the market has significant gaps in coverage that don’t account for increasing growth of the independent RIA model. Regulatory bodies like the SEC and DOL continue to increase staff auditors, making regulatory audits a more frequent occurrence.

Don’t Retirement Plan Professionals/Advisors Already Have This Kind of Coverage?

SCHRANDT: Short answer: maybe. It all depends on how the advisor is performing their respective services and on whose behalf the advisor is providing those services.

  • Many advisors rely on group E&O offered through their broker dealer, wire house, or the large corporate RIA they represent.
  • Some plan advisors form their own RIA outside of their BD relationship, which may or may not be covered by the group policy they are required to maintain.
  • Some online programs or group programs include specific ERISA fiduciary exclusions which means it is critical for a retirement advisor to review their coverage to be sure all of their provided services are indeed covered and the structure of the coverage is designed to trigger for all of your provided services.

What Are the Advantages of This Program Compared with Alternatives Currently in the Marketplace?

SCHRANDT: Many of the commonly used online insurance programs either exclude ERISA professional services or lack clear definitions or policy terms to incorporate all exposures ERISA law brings. This policy was specifically developed to provide coverage for the retirement plan advisor. We sought feedback from a law firm to ensure the necessary ERISA terms were included so that it addresses all the unique ERISA law exposures. Significantly, our program is the only one in the market that provides a panel of ERISA law firms to defend the retirement advisor in the event of a claim. The policy includes Groom Law, the Wagner Law Group and Trucker Huss as the approved defense panel for the program.

Additionally, incorporated regulatory coverage is included due to the increased presence and scrutiny of the SEC/DOL and other regulatory bodies.

Why Is This Program Important Today?

SCHRANDT: Lockton Affinity worked with a specialty insurance market to develop a policy specific to NAPA members and the risks their businesses face every day. The DOL fiduciary rule debate has made the term “fiduciary” a household term. The public now understands what a fiduciary is and, more importantly, the responsibilities of a fiduciary.

Furthermore, the advisor landscape is trending towards independence, and many plan advisors provide services within a dual representative capacity. Lastly, many of the generic online E&O solutions available to advisors are not designed to cover the specialized services of plan advisors. ERISA law opens plan advisors to unique exposures, and the current open market options do not define relevant ERISA terms and therefore do not provide adequate coverage for a plan advisor.

The Lockton Affinity Advisor Difference

At Lockton Affinity Advisor, we offer Errors & Omissions (E&O) Liability Insurance coverage that meets ERISA standards, including services as an ERISA 3(21) and 3(38) advisor, for your added protection and peace of mind. Lockton Affinity coverage can protect you against unnecessary risk exposure with insurance and service that stands out above the rest.

Protect yourself against today’s increased risks and vulnerabilities. Learn more today.