There are many times when you need someone who will represent you on your behalf. Say you have an investment account in which you are placing your retirement money. You have empowered a stock broker to have access to your money with the idea of increasing your wealth through investment. You are trusting this stock broker to act on your behalf and to your advantage. You would certainly want that person to be making smart decisions for you—after all that is what you are paying them for.
Who Is A Fiduciary?
Fiduciary is a difficult word to pronounce. It can also be difficult to properly grasp who a fiduciary is and what they do. Basically, a fiduciary is someone who acts on behalf of another party (person or institution) in a situation which requires the fiduciary to be honest and trustworthy. This maybe an attorney acting on your behalf, a financial advisor handling your money, or a person making decisions about your health if you are incapable of making such decisions. It is important to have this person acting with your interest in mind.
Here are several examples of fiduciaries:
- Executor
- Trustee
- Attorney
- Financial Advisor
- Stock Broker
- Health Care Agent
- Guardian of Minor children
- Pre-Need Guardian
Someone fulfilling one of these roles is acting on behalf of a benefactor.
What is Fiduciary Liability Insurance?
Fiduciary liability insurance protects the trustee (the party making decisions) from litigation by the benefactor. Similar to our first example, a financial advisor is making financial decisions on someone’s behalf. If he wrongfully terminates a profitable investment or mismanages the money by not keeping a certain level of diversification, he may be open for a fiduciary law suit. He may be found responsible for personally repaying any lost money. Fiduciary liability insurance would pa
Fiduciary Liability Insurance for Your Business
Any company which offers a retirement plan, like a 401(k), or a profit sharing plan could be susceptible to a fiduciary liability if their funds are mismanaged. A fiduciary cannot simply blame the outside service providers because the job of the fiduciary is to ensure the service providers are competent. You are tying yourself to the competence of whatever service providers you choose. For example, if as a company owner, you hire the financial advisor from the previous example to handle retirement investments for your employees, you are now the fiduciary and liable for his wrong actions.
Are You In Danger Of Being Sued?
Often, fiduciary liability claims come from employees or clients. However, certain government agencies can also bring law suits. There are several reasons a fiduciary can be sued, here are some examples:
- Denial or change of benefits
- Bad advice or improper counsel
- Inadequately funding a plan
- Conflict of interest
- Poor choice or third part-service provider
- Poor investment
- Lack of risk mitigation or lack of investment diversity
If you own a small business that provides employee benefits, you should consider adding fiduciary liability insurance to your business insurance.
For more information about fiduciary liability insurance or if you would like to review what specifically your business insurance policy covers, contact the experienced professionals at TJ Woods Insurance Company, Worcester, MA today for help. We also offer the full spectrum of business insurance, including errors and omissions insurance, and directors and officers insurance.
