The Limits of B/D-Sponsored E&O: What Your RIA Firm Might Be Missing

In today’s complex financial services environment, liability protection is essential—especially for Hybrid RIAs that blend both commission-based and fee-based business models. Many of these firms are required to carry Errors & Omissions (E&O) insurance through their broker-dealer (B/D) partners. While this B/D-sponsored coverage can feel like a convenient safety net, relying solely on it could leave significant gaps in your firm’s risk management strategy.

Think of the B/D’s E&O policy as an umbrella. It might protect you from a passing shower, but it may not shield your entire firm from a full-blown storm.

Before assuming you’re fully covered, ask yourself these four key questions:

1. Are All My IARs Also Registered Representatives (or Agents)?

If your Investment Adviser Representatives (IARs) aren’t also registered with your B/D, they may fall outside the scope of the broker-dealer’s E&O policy. Advisors providing fee-only advisory services under the RIA side of the business may require separate protection that isn’t included under the B/D’s umbrella.

2. Is My Email Server Monitored by the B/D? If Not, Is My Firm Covered for Cyber Risk?

If your firm operates independent communication systems (like your own email server), your B/D’s cyber liability protections likely don’t extend to your tech stack. This creates a critical need for standalone cyber liability insurance—especially given the rising frequency of phishing and hacking attempts.

3. Does the B/D’s Coverage Address Employment-Related Claims at My Firm?

B/D-sponsored policies typically focus on investment-related liabilities, not internal firm operations. That means disputes like wrongful termination, discrimination, or harassment claims may fall outside your coverage. A dedicated Employment Practices Liability Insurance (EPLI) policy may be necessary to truly safeguard your firm.

4. What Happens If We Fall Victim to a Social Engineering or Money Fraud Scheme?

Cybercrime tactics like social engineering fraud are increasingly sophisticated—and costly. These schemes often fall into a gray area that standard E&O or cyber policies may not cover unless specifically endorsed. It’s important to know whether your B/D’s policy provides protection for incidents like fraudulent wire transfers or impersonation scams—and if not, how you’ll fill that gap.

Bottom Line

Your broker-dealer’s E&O coverage is a valuable resource—but it’s not a one-size-fits-all solution. Hybrid RIA firms need to take a holistic approach to risk management, looking beyond the B/D’s policy to ensure their full business—people, technology, and operations—is truly protected.

Because when the storm hits, you want to be sure your umbrella covers your whole firm.

Golsan Scruggs is an insurance brokerage firm operating throughout the United States specializing in investment advisor E&O errors & omissions insurance (aka professional liability insurance) for RIA registered investment advisors. As one of the largest insurers of RIA firms in the U.S., we have a dedicated staff that understands the risks of the financial services industry and delivers superior results.  We make the underwriting process painless.

At Golsan Scruggs, we believe it is incumbent upon us to earn the right to be appointed as your insurance and risk-management agent. Our RIASURE process exists to serve that purpose.

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