The ostrich-like behavior of many investment advisors and other financial professionals may come home to roost in an unpleasant manner pursuant to the Bernie Madoff debacle and other similar schemes which are unraveling as we speak.
I’ve been placing coverage for investment advisors, hedge fund managers, broker/dealers, and private equity managers for several years. I receive many more inquiries than I do orders to bind.
Most frequently, unless they are being required by a client or vendor to carry coverage, the advisor or money manager chooses to forego coverage. It seems that they perenially believe that nothing will go wrong with the investments into which they put their clients, and that if it does, well hey, they made all the required disclosures, so they can’t/won’t be held liable anyway.
I have two words to say to that: “defense costs”.
Even if an advisor is blameless, if he or she is sued by irate clientele a defense must be mounted against that suit. Any disclaimers, all disclosures, and all details about advice given will be dragged into court to determine whether or not they were proper, sufficient, and therefore render the professional blameless in the matter. Even a successful motion for a summary judgment dismissal can cost thousands and thousands of dollars in legal fees.
When it comes to something like Madoff’s situation, there is no amount of disclosure or disclaimer that will excuse any advisor from pointing his or her client in that direction. Now, in retrospect, the blatant lack of legitimacy is glaringly apparent. What possible excuse can an advisor propose for how he or she did not see through the smoke and mirrors?
The good news (for my agents and me) is that some advisors have been sensitized by the recent trials and tribulations in the marketplace and are more aware of the need for coverage. My hope is that they will come looking for it and will choose to buy now.
Others may feel that with the insurance and financial industry being topsy-turvy they will not be able to get coverage anyway, so why should they try. They would be incorrect. Coverage is still available. It is being more carefully underwritten. Some classes of business have contracted significantly (can you say “hedge fund”?), and some retentions or premiums will be higher. The larger the account, the more easily we can find coverage.
So all you advisors and money managers, Come on Down! We have coverage for you, and perhaps now you can see why you need it.