first_img Share this article and your comments with peers on social media Megan Harman “Financial advisors are increasingly the target of E&O claims,” said Tasson. “There is more litigation in our society to begin with, and there’s more litigation against professionals.” In some cases, this is being driven by “deep pocket theory” – the idea that since professionals such as life insurance agents are required to carry E&O insurance, any client who pursues litigation is ultimately going after the insurance company, and not the advisor. “The advisor is not going to pay out of pocket; it’s going to be the insurance company,” Tasson said. “In some cases that’s accurate, but what consumers fail to realize is the emotional, stressful, financial turmoil that takes in having the advisor involved.” Some of the most common allegations against advisors include failure to assess a client’s true risk tolerance, failure to disclose the risks associated with a product, recommending unsuitable products, breach of fiduciary duty when an advisor puts his or her own interests ahead of the client’s, and misrepresentation of how an insurance or investment product works. Tasson recommends implementing the following best practices to avoid claims, and to position yourself favourably in situations when claims arise: > Clearly explain to clients the nature of the services that you offer, and avoid giving the impression that you’re a one-stop shop for all of their financial services needs, unless you are fully licensed and qualified to do so. For instance, even though you may give tax-related advice with respect to a client’s registered investments, clarify that you are not an accountant, Tasson said. “It’s very important to be clear about the services that you do and do not provide.” > After meetings, provide clients with a summary of what was discussed and any recommendations or decisions that were made. Even a casual email summarizing the meeting provides a paper trail that constitutes meaningful evidence in court, in case a claim arises, Tasson said. “How can a judge say that didn’t happen when it’s in writing?” > Keep all of your client files indefinitely. Even if you’re no longer working with certain clients, Tasson recommends holding onto their files, whether in an electronic or paper-based format. Although many advisors follow the rule of keeping files for seven years, she said E&O claims can arise many years after a transaction has occurred, and documentation is critical to support your case in court. “You never know what’s going to transpire going forward,” Tasson said. Court approves data breach settlements with BMO, CIBC Related news Errors and omissions (E&O) insurance claims against financial advisors are becoming increasingly common, but there are steps that advisors can take to mitigate claims, according to Roberta Tasson, vice president of corporate risk at The Magnes Group Inc. Speaking at the Independent Financial Brokers (IFB) Spring Summit in Toronto on Wednesday, Tasson said there’s a greater willingness among consumers to sue the professionals they work with, in cases where they feel they’ve been given bad advice. center_img Bitcoin surge doesn’t affect damages, B.C. court says Keywords Lawsuits,  Errors and omissions insurance Universal life policies can’t be used for unlimited deposits, appeal court rules Facebook LinkedIn Twitterlast_img read more