How Much RIA E&O Insurance Should I Buy?

Most insurance advice fails RIAs.

Generalist brokers tell businesses to spend one percent of revenue on insurance. That rule doesn't work for investment advisors. Smart firms compare claims from similar businesses, then buy coverage for those risks. You can beat the standard advice.

Start With These Guidelines

Professional Liability Limits by AUM*:

• $0 - $200M → $1M Limit

• $200M - $400M → $2M Limit

• $400M - $700M → $3M Limit

• $700M - $1B → $5M Limit

• Over $1B → $5M - $10M Limit

*Every RIA firm differs. These numbers give a starting point. BPI advises speaking to an RIA E&O specialist.

Factors That Change Everything

Your actual needs depend on more than AUM. Consider these factors:

1. Your Richest Client
A client worth $50 million creates more risk than ten clients worth $500,000. If your biggest client exceeds 20% of your AUM, bump up your coverage.

2. Extra Services
You act as trustee? Prepare taxes? Run family office services? Each service adds risk.

3. Alternative Investments
Private equity, hedge funds, cryptocurrency and real estate multiply your risk.

4. Custodian Rules
Schwab, Fidelity, Altruist, and Pershing set minimum insurance requirements.

5. State Laws
For example, Oregon and Oklahoma require E&O insurance. Your state might have rules too. Check before you buy.

When Self-Insurance Makes Sense

One client managed a private fund worth hundreds of millions. He owned half the assets. Ten years of insurance premiums would equal the policy limit. He had money to defend himself if needed. Self-insurance made sense.

The question becomes: Can you fund a strong defense if a client sues?

The Bottom Line

The bullets give you a starting point. Your five factors determine your real needs. Talk to brokers who handle RIA claims. Focus on your specific risks, not generic rules.