How Advisors Meet Their Custodian Requirements With Lockton Affinity Advisor

Sometime in the last year or so, you probably received notice that your custodian was instituting new insurance requirements. Today, more and more financial professionals are meeting their custodian requirements with coverage from Lockton Affinity Advisor. Here’s the story of how one advisor went from panic, to plan, to protection.

Facing a Deadline

ACTION REQUIRED: Business Insurance Requirement Updates… The advisor inhaled sharply as he studied the new email from his custodian. Like thousands of other RIAs who received similar notices last year, this advisor found himself poring over a list of new insurance requirements and looming deadlines that could impact his entire business.

“Cyber attacks, trade errors and other incidents are increasing in frequency and severity,” read the notice. The memo went on to explain that it was critical for firms to “take pro-active measures” to protect themselves and their clients — and that meant buying insurance.

Yet not just any insurance would do. This custodian, like other top players in the industry, was naming specific types of policies, limits and coverages. The advisor studied the new mandates:

All RIAs utilizing the custodian’s platform are to obtain and maintain continuously:   

  • At least $1,000,000 in Errors & Omissions or Professional Liability coverage
  • At least $250,000 of included Social Engineering coverage
  • Included coverage for Financial Institutions Bond, Fidelity Bond or other employee theft protection

The advisor already had insurance, but off the top of his head, he didn’t know if his coverage met these requirements. “One more what if to add to a growing list,” he thought. He went over them in his head as he thought about his next move:

Do I already have this? How do I get it? Will I have trouble getting this? Will I be able to afford it? How much will this cost me? How long will it take?

On top of everything, the first deadline for complying with the new rules was less than 90 days away. It had been a very busy season at the firm. Things were just starting to slow down and the advisor was looking forward to a break. Now, he had to worry about figuring out this insurance issue before he could truly relax.

Reaching Out

The advisor decided the best thing to do to get the ball rolling was forward the email to his insurance policy’s account manager at Lockton Affinity Advisor. He clicked on the little blue arrow and thought about what to say.

He’d always felt like he had a good relationship with this company. He wasn’t passed around a call center of people who didn’t know who he was or what his business was. It was always the same person, a guy not so different than himself, with an attention to detail he appreciated, who had been working with advisors for years and had a fiduciary accreditation. The advisor took a deep breath and began typing:

Just received this notice of some upcoming requirements. Can you advise us on whether the firm has all this coverage? I’m sure I’ll need something in writing before this upcoming deadline.

With the message sent, the advisor turned his attention back to the day’s agenda. An interoffice meeting was minutes away, then he had client meetings the rest of the day. Getting back from a late lunch, he learned he’d just missed the account manager’s call. He’s so fast, he thought and asked his assistant to set up a call in a couple days.

Protecting the Firm

The advisor’s assistant put the call through. “Hello.” The account manager greeted him by name and asked how he was doing. It’d been almost a year since they spoke, during the advisor’s annual insurance review. Every year, he had a one-on-one check-in with his account manager to go over his insurance, ask questions and get advice on managing his firm’s risks.

“Thanks for getting back to me. I have to admit, that notice threw me for a loop,” admitted the advisor.

“I’m glad you reached out. We were aware these sorts of industry changes were coming at some point, but we didn’t know exactly when,” explained the account manager. “Fortunately, your insurance levels are, for the most part, already in a really good place.”

The advisor listened as the account manager explained. He had acted on a recommendation to up his E&O limits a couple years ago to $1,000,000 and his policy included coverage for employee theft, meeting two of the requirements. The only catch was that his cyber policy offered $100,000 for social engineering, not the required $250,000.

“While this carrier doesn’t offer the $250,000 option, I’ve emailed you an application for another carrier that does. If the premium makes sense, we can look at switching your coverage. Then you’ll meet all these requirements and well before the final deadline.”

The advisor breathed a sigh of relief. His account manager even told him he would likely be able to get this particular cyber policy canceled pro rata, with a refund for the policy premium paid for the unexpired term.

“Thank you. I’ll review the application and get back to you next week.” The advisor ended the call and looked out the window. Now it’s time to plan that vacation, he thought.

Taking Action

It’s just one advisor and one story, anonymized for privacy. But stories like this happen every day at Lockton Affinity Advisor. We work with over 1,600 registered investment advisors around the country, in addition to broker dealers, investment fund providers, life agents and IMOs.

Beyond helping you meet your custodian requirements, our insurance recommendations are tailored to suit. We help ensure you put your best foot forward with carriers and underwriters, highlighting the positive risk management details of your application. Plus, if an adjustment is later needed, our streamlined process ensures it can be made quickly.

Each Lockton Affinity Advisor customer receives a personalized price indication. Learn more by visiting today.