Multi-family offices (MFOs) provide a wide variety of services including tax and estate planning, risk management, objective financial counsel, trusteeship, lifestyle management, coordination of professionals, investment advice, and foundation management. Some multi-family offices are also known to offer personal services such as managing household staff and making travel arrangements. These additional services create a different set of exposures that must be properly understood and insured. Professional liability insurance in this space is highly variable and non-standard. Careful construction of policy language in order to appropriately transfer risk is critical.
Below are many of the services provided which go beyond that of a typical wealth manager and require special consideration within insurance contracts:
CLAIM EXAMPLES
The following allegations are examples of claims experienced by Multi-Family Office (MFO) clientele:
- Unsuitable Trading
- Breach of Fiduciary Duty
- Failure to Disclose & Conflict of Interest
- Breach of Contract
- Failure to Supervise
- Erroneous Trade
- Erroneous Bill Pay
- Unsuitable & Risky Investment Recommendations
- Unauthorized Transaction
- Unsuitable Investment
WHAT EVERY MULTI-FAMILY OFFICE SHOULD KNOW
Based upon these legal duties, risk categories, case law, and claim examples, every MFO should understand these five important facts:
- There is no higher professional standard than that of a fiduciary (“duty of care”).
- Cases brought against advisers can be groundless or unwarranted but trigger and demand attention (defense) regardless (i.e. alleged vs. actual) of circumstances.
- The legal framework (IAA – the Act) imposes liability to an Adviser (IAR) personally as an Individual – as well as to the IA entity. The definition of “adviser” includes “personal”. The corporate entity may not necessarily act as a shield of protection.
- Categories of risk are wide and multiple.
- Monetary exposures can be deep and catastrophic. The occurrence of an “action” against an adviser should be expected, based on success and longevity. The degree of severity is somewhat unknown.
TRANSFERRING RISK THROUGH INSURANCE
What are the primary insurance coverage forms available in the insurance marketplace to wholly or partially insure (transfer) the risks of operating as a MFO?
- Errors & Omissions Liability
- Directors & Officers Liability
- Fidelity Bond
- ERISA Bond (In-House)
- ERISA Bond (Client/3rd Party Plans)
- Cyber/Data Breach Liability
Caution is recommended to the MFO community to recognize the specialty of the MFO underwriting marketplace and to solicit advice from qualified and experienced professionals possessing superior knowledge of fiduciary exposures and risk-transfer solutions. Golsan Scruggs understands your multi-family office industry and has a wide range of insurance products designed to protect your firm.
THE RISK ASSESSMENT PROCESS
Golsan Scruggs has developed a risk assessment called RIASURE. This process helps us understand your practice and analyze coverage issues so that a proper solution is structured to mitigate the exposures of your fund operation.
To obtain your complimentary Mutual Fund RIASURE Review, please provide the following information or contact us at (800)273-5883.
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