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.