After 20 years, one firm decided to buy coverage. From its founding in 1983 until last year, L.J. Altfest & Co., an advisory firm based in New York, didn’t bother with E&O coverage. The reticence arose partly because the principals weren’t sure they needed the coverage and partly because they weren’t quite sure what being insured would entail. One fear was that the insurer would begin telling the firm what they could and couldn’t do if they wanted coverage. But with an estimated $370 million under management for more than 300 clients, and a staff that includes two principals, three other planners, and an investment department with four professionals, it was a move that could be put off no longer.
“E&O was something we had thought about for the last 20 years,” explains one of the firm’s principals, Karen Altfest. “We would make a few false starts and then go on our way without it, partly because it seemed to be such a difficult process and we weren’t sure what it was doing for us. Now we think that maybe we were a little slow in jumping on this bandwagon.”
Ultimately it was the urging of its custodians–Schwab and Waterhouse (now TD Ameritrade)–that helped spur the firm toward finally purchasing coverage. “We’re on the Schwab Advisor network and they were asking all their advisors to have this coverage. We had been considering it anyway, so last year we thought that it was time to finally do it,” Altfest continues. “Over the years, fortunately, we’ve had very few times when that would have come up, but like everybody in the business, you’re always aware that it could.”
One of the firm’s other planners, Mike Prendergast, was assigned to work with Altfest on preparing an extensive review of the E&O coverage that was available. He found that they were of sufficient size to have a number of options available.
“We looked at the programs that were available through our membership in the FPA, through NAPFA, through our custodians, through [firm president] Lew [Altfest]‘s affiliations, because he’s a CPA and a CFA, in addition to being a CFP. We looked at all the bases,” he says.