Access to Advisor and Plan Sponsor Liability Insurance Vendors

With the world of fiduciary responsibility and liability being scrutinized more intensely everyday by the DOL, defensive safety nets must be deployed by advi- sors, brokers and Plan Sponsors as risk management procedures. Registered Invest- ment Advisors who are acknowledged fiduciaries; Corporate officers who may not understand they are fiduciaries; and brokers who do not want to become fiducia- ries all need various and different forms of liability coverage. For example, "first party" fiduciary insurance is a policy covering breaches made by the Plan Sponsor. Fiduciary insurance coverage under the advisor policy would be considered "third party" since there is an indirect fiduciary relationship. As the best offense is often referred as having the best defense, this defensive posture is needed because of the potential magnitude of the fines and penalties on a personal basis. ERISA Section 410 provides an anti-exculpatory clause which prohibits a Plan Sponsor from paying or indemnifying a fiduciary for a breach. This ultimately means only the fiduciary's employer or Plan Sponsor may be financially able to pay such a claim. This may put personal assets of the fiduciaries at risk, which is why the liability coverage is of enormous importance.

Understanding these issues and how to provide fiduciary insulation, demonstrates a value proposition to Plan Sponsors by our advisor partners. Having in-depth knowl- edge regarding this fiduciary exposure can clearly be used as a successful marketing tool. APG has an in-depth understanding of these liability issues to aid our advisor partners given our compliance experience. One of the services we provide within our Fiduciary Administration and Compliance Training Services (FACTS) program is a thorough and rigorous liability needs analysis. In order to successfully perform this exhaustive due diligence, we have sought out organizations that provide only professional liability coverage as a core competency. These alliances and channels of distribution secure and afford our advisor partners and Plan Sponsors deep discounts, significant savings and maximum value. These relationships have been carefully constructed to offer our advisor partners access to professional organiza- tions who will be an ongoing resource. Our strategic partners are willing to analyze current coverage, demonstrate where there may be potential deficiencies and liabil- ity and recommend the necessary adjustments. This level of detailed examination and review ensures the peace of mind that the coverage is correct. This ultimately means the right amount of coverage and the fiduciaries are correctly identified.

Basic issues such as understanding the differences between a Fidelity Bond and fiduciary liability insurance are often the necessary starting point. The distinction between Directors/Officers Insurance and fiduciary liability insurance must be carefully reviewed, as most D&O insurance policies do not cover ERISA fiduciary related issues. Understanding that fiduciary liability insurance covers and pays claims regarding alleged breach of fiduciary duties to protect personal assets gives our advisor partners and Plan Sponsors the information they need to properly protect themselves. Each policy has its own terms, conditions, limitations, and definitions. For example, since fiduciaries can be either named or operate in such functional capacity, the very definition of insured must be broad enough to ensure all fiducia- ries are properly identified and covered. All parties need to be aware of these issues and truly comprehend what the policy covers and does not cover.