Lockton Affinity Advisor Meets Fidelity’s New Insurance Requirements

Large financial firms are taking action to address the increasing risk in the registered investment advisor (RIA) industry. Following closely on the heels of Schwab, the latest is Fidelity Investments, whose Fidelity Institutional business unit serves financial intermediaries and institutions with investment technologies and solutions.

In March, Fidelity Institutional sent out a memo communicating new business insurance requirements for certain firms utilizing its platform that will be introduced over the next year. Fidelity noted that the new requirements were needed to protect against the increasing frequency and severity of trade error, social engineering and cyber fraud incidents.

Since 2006, claims against RIAs have proliferated, reaching new heights over the last few years. As an industry leader in RIA insurance protection, Lockton Affinity Advisor agrees that proper insurance coverage is an important tool for protecting against the threat posed by these incidents.

Here’s a look at how the new insurance requirements set by Fidelity may impact insurance for RIAs and how insurance from Lockton Affinity Advisor can meet your firm’s needs.

How New Fidelity Insurance Requirements Will Impact RIAs

With more than $4 trillion in total assets under administration, Fidelity Institutional is one of the largest investment management firms in the U.S. with thousands of financial advisory firms relying on its platform and services.

Fidelity’s March 2022 memo outlines the new insurance requirements that many of these firms will need to meet:

  • A new policy will require certain firms on Fidelity’s platform to carry specific business insurance coverages and limits.
  • The new insurance requirements will apply to all SEC and state-registered advisors, including its Multi-Family offices, Turnkey Asset Management programs and Serviceable Available Market clients.
  • Fidelity notes that its Bank/Trust Companies, Single-Family offices and Wealthy Family clients of Fidelity Family Office services are excluded from the new requirements.
  • Coverages required include 1) Errors & Omissions (E&O) or Professional Liability Insurance, 2) Social Engineering Insurance and 3) Financial Institutions Bond, Fidelity Bond or other insurance covering employee fraud or theft for firms with more than one employee.
  • Firms must obtain and maintain continuous insurance coverage for these third-party claims with an aggregate limit of at least $1 million, where a sublimit for Social Engineering claims must include at least $250,000 of coverage.
  • Fidelity lays out a timeline for the implementation of its new requirements, with all firms required to notify Fidelity of their current insurance situation by June 30, 2022, firms without coverage to obtain the minimum coverage required by Fidelity by September 30, 2022, and for firms with an active insurance policy to upgrade their coverages to meet the new requirements by March 31, 2022.

Why New RIA Insurance Requirements Are Necessary

New requirements to obtain third-party insurance represent an added cost for RIAs to do business. These increased costs may be viewed negatively by some, but the added expense pales in comparison to the threat of typical RIA lawsuits.

Proper insurance coverage has never been more important for RIAs:

  • Before 2006, large class-action lawsuits were rare and targeted at big firms with billions of assets under management.
  • Claims against investment losses have been increasing since 2008, with many smaller firms now being targeted.
  • Most recently, claims and lawsuits alleging fraud or excessive fees doubled between 2019 and 2020.

Claims and lawsuits against RIAs pose a significant threat:

  • Costs to defend against even a baseless claim can be extraordinary, especially if a lawsuit proceeds to the discovery phase.
  • Fiduciary obligations and liability for losses are often shared between several parties, meaning you will often need to defend yourself if any of the involved parties is sued.
  • Additionally, under ERISA Section 409, your personal assets may also be placed at risk in a claim.

How Lockton Affinity Advisor Meets RIA Insurance Needs

New Fidelity insurance requirements help drive home the importance for RIAs to have proper insurance coverage. However, RIAs are largely on their own when it comes to shopping for and obtaining the necessary coverage. Fidelity cautions that its new requirements may not necessarily be enough coverage for every business to protect its assets, employees and clients, so it’s important to find coverage tailored to your own needs.

At Lockton Affinity Advisor, we provide products and services that meet the needs of RIAs, including the new requirements of Fidelity Investments. Your choice of insurance is key, so it’s important to ask the right questions. To help you assess your insurance needs, here are some key questions to ask when shopping for coverage, along with our answers.

What types of insurance policies/coverages do you provide?

Lockton Affinity Advisor offers specialized coverages for RIAs including but not limited to E&O Insurance, Cyber Liability Insurance, Financial Institution Fidelity/Crime Bond and General Liability designed for RIAs.

Do you specialize in any particular type of insurance?

Yes, we specialize in commercial insurance solutions for RIAs and broker dealers.

What differentiates your company from other insurance providers?

Our entire team is trained and specializes within the RIA industry. Unlike others, we offer exclusive E&O and Cyber Liability solutions that can only be purchased from us. Lockton Affinity also has the advantage of being an independent firm and representing all the other typical carriers that our competitors may offer.

Do you currently provide policies to independent RIAs?

Yes, we insure over 1,600 RIAs across the country.

What other types of financial services companies and industries do you serve?

In addition to RIAs, our firm also works with broker dealers, life agents and IMOs and investment fund providers.

What are the main types of insurance claims you have seen come from the RIA industry?

Common E&O claims include breach of fiduciary duty, trade/execution errors, suitability claims and contract disputes. Common cyber liability claims include fraudulent instruction claims, phishing and social engineering and ransomware claims. Common fidelity claims include fraudulent instructions and false pretense claims.

Based on what you know about our firm, what insurance policies would you recommend?

Recommendations should always be tailored to suit your particular needs. However, to be adequately protected today, most RIAs will need three commercial insurance policies: E&O, Cyber Liability (including coverage for social engineering) and Fidelity Bond (including coverage for false pretense and fraudulent instructions).

What types of events would the coverage you are recommending cover?

E&O coverage is triggered if a client is damaged or alleges they are damaged as a result of a delivered professional service that your firm provided or failed to provide. Additional policies are available to protect against a broad array of common risks, including claims for social engineering, theft by hacker incidents and theft by employee.

What are the main factors that you evaluate when determining policy costs for your customers?

The cost of insurance for your firm will vary based on the size of your firm, the limits you choose, and the insurance provider you select. Lockton Affinity Advisor follows industry standard practices for underwriting, considering typical factors such as a business’s revenue, assets under management, number of employees, services provided and other factors.

What would you approximate as the cost for a firm of our size based on your recommendation?

Each Lockton Affinity Advisor customer receives a personalized price indication tailored to your unique insurance needs. Feel free to contact us to learn more about what insurance would look like for your firm.

How do your rates compare with those of other insurance providers?

At Lockton Affinity Advisor, we take the time to truly understand our client’s specific practice, and highlight the positive risk management details beyond what a standard application will uncover. Because we specialize within the RIA industry, we know what is important to the carrier’s underwriter and make sure we highlight those details. We also offer exclusive programs.

Describe your billing process and terms?

We require just a signature to bind coverage. We then invoice our client and offer flexible financing options if desired.

If a claim is made and a resolution is determined, typically how long does it take for payment to be made?

To minimize the cost and stress of a claim, we assign a claims liaison to all clients that have a claim. Your claims liaison will assist you along the entire claim process, including making sure damages are paid in a timely manner.

Is reputational damage covered in any policy you would recommend for our firm?

Yes, reputational coverage is included in both our E&O and Cyber Liability solutions.

If a cybersecurity breach occurs, does your company provide services to research the cause and recommend steps to help remediate the problem?

Absolutely. Every cyber carrier that we represent offers robust post-breach services including but not limited to client notification services and specialized forensics.


Coverage from Lockton Affinity Advisor meets the new requirements set by Fidelity for RIAs and offers high levels of protection for all its RIA and broker dealer clients. With the increasing risk posed to RIAs like you, it’s important to make sure you have adequate insurance coverage whether you are an RIA with Fidelity or with any other firm.