Claims Increase After Markets Decline

As an insurance brokerage firm insuring roughly 1,200 RIA firms throughout the U.S., we often get the questions, “How often do you see claims? How many claims do RIAs really experience?” The answer, “It depends heavily on market performance and volatility”. While there is no governing body that specifically tracks and records RIA claims, FINRA does so concerning arbitration filings and we have found this data to be representative of what the RIA world has also experienced concerning claim trends over time.

The below chart shows this data comparing the S&P 500 against arbitration cases filed with FINRA from 1992 to the end of 2019. By doing this, we can see the historical trends and given general market conditions. What we find is that there is an inverse relationship between market performance and the risk of a case being filed. As the markets deteriorate, claims increase. This, of course, is to be expected. Should the market trend back down, increased investor lawsuits will follow. As of this writing, March 10, 2020, the S&P sits at about 2,750. A sharp decline from the intraday high of 3,393 on February 19, 2020. Now might be the time to look carefully at risk management strategies and insurance contracts to ensure your firm is properly protected.

*Chart Explanation – The data for the S&P 500 is the weekly closing price. The arbitration cases are the annual cases filed with FINRA divided by a factor of 4. The adjustment of the cases was done to bring the data series into the same range as the S&P 500. For example, in 2003 the S&P 500 closed for the year at 1,111 and the total arbitration cases filed were 8,945 and graphed at 2,236.25 (1/4th of the total).

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.

Our RIASURE Review will analyze your fiduciary exposures, provide rate details and comparisons, and provide a contract comparison. No application required.

To obtain your complimentary RIASURE Review, please provide the following information or contact us at (800)273-5883. Fields marked with * are required.