Close Close
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards

Industry Spotlight > RIAs

Schwab Mandates E&O Insurance for RIAs

Your article was successfully shared with the contacts you provided.

What You Need to Know

  • RIAs must now have at least $1 million of coverage within 90 days of signing a Schwab service agreement.
  • They must also maintain insurance covering social engineering, theft by hacker incidents and theft by employee.
  • The new policy was implemented due to increased operational risks as firms expand and rising industry fraud, cybercrime and trading volatility.

RIAs who custody with Charles Schwab must now maintain errors and omissions coverage and insurance covering social engineering, theft by hacker incidents and theft by employee (if applicable), the firm told its affiliated advisors this week.

Under the new policy, each RIA firm “needs to have an aggregate minimum of at least $1 million of coverage,” a company spokesperson told ThinkAdvisor on Friday.

RIA firms that are new to Schwab “must be compliant” with the new policy within 90 days of signing a Schwab service agreement, the spokesperson said. “Schwab will be working in several phases over the coming year with existing clients who do not already have insurance,” according to the company.

Meanwhile, TD Ameritrade advisors “will need to have insurance in place as part of their transition to the Schwab platform and more details will be provided to them closer to conversion,” the spokesperson said.

Two factors led to the firm’s decision to implement the new policy, the spokesperson explained. “Independent advisors have been growing quickly, and this growth brings increased operational risks as firms expand and day-to-day operations become more complex.

“This complexity, combined with rising industry fraud, cybercrime and trading volatility, means it is critical for advisors to evaluate how well their firm is protected.”

“Schwab believes that insurance is a vital component to managing risk at Schwab and in advisors’ businesses and is consistent with the commitment to being a fiduciary for clients,” the spokesperson went on to say. “Coverage protects a firm and its clients from the unexpected, transfers risk away from the firm’s balance sheet and advisors’ personal assets, and can provide coverage for legal costs, settlements, and the costs of operational errors.”

Schwab compiled informational resources to help advisors learn about the different types of insurance available, identify the benefits of each and find the right mix of protection for their firm and clients, according to the company.

Schwab created a list of third-party insurance providers that advisors can contact directly and independently evaluate. It is also working with a select group of insurance providers to secure preferred pricing for RIAs who custody with Schwab, the spokesperson said. More details about those providers will be available starting in November.

(Pictured: Charles Schwab sign; Photographer: Christopher Dilts/Bloomberg)


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.