Fiduciary liability insurance is one of the most misunderstood forms of business insurance. This is because the concept of a fiduciary in and of itself is one that is often misunderstood by business owners. Despite this, fiduciary liability insurance is one of the most important liability coverages that a business can have.
A fiduciary’s job is to provide you with a sense of security and stability by offering expert advice on how to make the best financial decisions for yourself and your business. Excellent fiduciary liability insurance can protect you if an advisor makes a bad decision or breaches their fiduciary duty.
This guide will provide an in-depth description of what exactly a fiduciary is, what the best characteristics of an effective fiduciary are, the benefits of employing one, and the importance of investing in fiduciary liability insurance to protect you from harmful business practices.
What Is a Fiduciary?
If you are a business owner, then you have probably heard the term fiduciary used fairly often to describe management and financial advisors. However, just because a third-party firm offers financial advice and other forms of management to other businesses does not mean that they are a fiduciary.
By definition, a fiduciary is a person (or agency) who holds a legal or ethical relationship of trust, care, and loyalty with another party. Their services are often utilized in a financial setting. For example, a personal fiduciary may handle retirement plans for his or her clients, whereas a business plan fiduciary may organize financial transactions or manage other aspects of a business’s inner workings.
To reiterate, a fiduciary’s primary distinction from a typical financial advisor is that the relationship with the client is bound by trust and loyalty. If a person or firm is a true fiduciary, then they will only make decisions in their clients’ best interests.
For example, they will not sign a contract or a transaction simply because it will net them a higher commission. The deal must be in their client’s best interest. Other standout characteristics of a trustworthy fiduciary include:
- Transparency (does not have hidden fees or utilize shady business practices)
- Objectivity (only makes decisions based on its clients’ needs)
- Honesty (does not work its way around the truth and is straightforward)
- Reputability (is considered to be a trustworthy advisor by numerous sources)
Why Is it Important to Have a Fiduciary?
A fiduciary can be a valuable asset to any business owner. Managing a business’s finances can be a daunting task, especially as a company grows in size and scope, and an experienced and reputable third party can offer business owners advice and expertise on how to make the best decisions for their company.
However, fiduciaries are not limited to the world of business. A person can benefit from a fiduciary’s services in their personal life as well. We already mentioned how a person can hire a fiduciary whose services are dedicated to helping people plan for retirement, but there are plenty of other kinds of fiduciaries beyond this example.
Other types of fiduciaries can offer private banking and wealth management, and some are not even relegated to the realm of financial services. Fiduciaries can take the form of guardians, wards, and insurance providers.
A great fiduciary can provide a sense of security and stability to a person’s life by always being there to help them make tough decisions. It is important to have somebody you can rely on and trust who is also able to be objective and thorough in his or her services.
Why Do I Need Fiduciary Liability Insurance?
Thus, we come to the importance of fiduciary liability coverage. One of the primary reasons that fiduciaries are misunderstood by the public is the way that term is so loosely thrown around by different firms. A person or an agency can claim to be a fiduciary when they are in fact not one at all.
This goes back to the important fiduciary characteristics of transparency and honesty. A shady advisor or financial agency may put forth the image that they are loyal to their clientele and are completely unbiased, but, in actuality, are only focused on their own personal gain.
When a fiduciary claims to have his or her clients’ best interests at heart but then makes decisions that are mostly conducive to his or herself rather than the client, it is considered to be a breach of fiduciary duty.
This is why it is crucial to invest in insurance coverage to prevent yourself from falling victim to these kinds of poisonous business practices. Our goal is not to paint fiduciaries in a negative light, as most are trustworthy and reliable, but we believe that it is always better to be safe than sorry.
Most fiduciaries are governed by the Employee Retirement Income Security Act (ERISA) of 1974, which is “a federal law that sets minimum standards for most voluntarily established retirement and health plans in private industry to provide protection for individuals in these plans.”
The ERISA governs fiduciaries by “requiring that those persons or entities who exercise discretionary control or authority over plan management or plan assets, anyone with discretionary authority or responsibility for the administration of a plan, or anyone who provides investment advice to a plan for compensation or has any authority or responsibility to do so are subject to fiduciary responsibilities.”
The Cowell James Forge Insurance Group can protect individuals and businesses from advisors who have committed a breach of their fiduciary duty. Our fiduciary liability insurance plans will cover any costs of legal defenses against harmful fiduciaries, as well as any losses suffered. Additionally, our fiduciary liability insurance includes access to expert lawyers who specialize in ERISA cases.
If you would like to be protected from breaches of fiduciary duty by our fiduciary liability insurance coverage, contact us today to receive a quote. Or, you can take a look at our other business insurance plans and solutions to figure out which form of protection is best for you.