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Stockbrokers Insurance Policy Information

Stockbrokers Insurance. Whether you're an independent stockbroker or you operate a brokerage firm, your job is to assess stocks, provide your clients with valuable insight, and help them make the best financial decisions; a pretty monumental task, to say the least.

From encouraging purchases in stocks that are showing promise to persuading the sale of shares in companies that have a questionable outlook, the advice you provide has a substantial impact on the monetary future of the people you serve.

Stockbrokers are trained and licensed to purchase and sell stocks, bonds, commodities, and other securities for their individual or corporate clients on a fee or commission basis. A security is a document proving ownership of stocks, bonds, or futures.

Stock represents a piece of ownership in a corporation, while a bond refers to the purchase of corporate debt, such as a bond issued to finance the expansion of a business. Commodities are unprocessed materials, such as grain, livestock, or metals, that are traded on futures markets. Stockbrokers function only as agents (intermediaries between buyers and sellers), whereas investment bankers buy on their own account and may also function as agents.

Either may recommend and advise purchases and sales to their clients. Stockbrokers are regulated under the jurisdiction of the Federal Securities and Exchange Commission. Stockbrokers have a high degree of fiduciary responsibility to their clients.

While you do your best to stay current with the market and abreast of the exchange, no matter how much knowledge and experience you have, there are no guarantees. Unless you have a crystal ball, there's no surefire way to predict what will happen in the future with 100% certainty and a single mistake could end up being partly to blame for substantial financial losses.

Of course, if you operate a firm, you're also responsible for ensuring the safety and well-being of the brokers you employ, as well as anyone who enters your business. If anything happens to the physical structure of your commercial property, you're responsible for that, too.

That's a lot of financial responsibility. How do you protect yourself from liabilities? By investing in the right type of stockbrokers insurance, of course!

Stockbrokers insurance protects your firm with rates as low as $27/mo. Get a fast quote and your certificate of insurance now.

Below are some answers to commonly asked stock broker insurance questions:

• What Is Stockbroker Insurance?
• How Much Does Stockbroker Insurance Cost?
• Why Do Stockbrokers Need Insurance?
• What Type Of Insurance Coverage Do Stockbrokers Need?
• What Does Stockbrokers Insurance Cover & Pay For?

Why Do Stockbrokers Need Insurance?

As mentioned above, if you're an independent stockbroker or you operate a brokerage firm, you may be held liable for any financial mishaps that may occur. For instance, if you encourage a client to sell shares and it turns out that the company ends up seeing huge gains, that client could be thousands - if not millions - of dollars. Based on your advice, he or she could blame you for those losses and take legal action.

If you're the owner of a firm, there's a chance that one of your employees could suffer a work-related injury or a third-party files a lawsuit against you for property damages or personal injuries. If something were to happen to the physical structure of your firm - a fire or an act of vandalism, for example - your commercial property and the contents within it could be damaged or stolen.

In any of the above-mentioned scenarios, you could be looking at costly legal fees and settlements or medical and repair bills. Paying for those expenses out of your own pocket could end up putting you in financial ruin.

With the right type of stockbrokers insurance coverage, however, your carrier would cover the expenses for you. In other words, insurance can help protect you from significant financial losses.

Stockbrokers' Risks & Exposures

Premises liability exposure is often minimal since most of the client contact is done electronically or by mail. If clients visit the premises, they must be confined to designated areas to prevent them from seeing other clients' confidential information or from hearing private conversations.

To prevent slips, trips, or falls, all areas accessible to customers should be well lighted with floor coverings in good condition. The number of exits must be sufficient, and be well marked, with backup lighting in case of power failure. Parking lots and sidewalks need to be in good repair with snow and ice removed, and generally level and free of exposure to slips and falls.

Off-premises exposures arise from sales visits, training sessions, and similar work at the customer's premises. There should be policies and training as to off-site conduct by employees.

Professional liability exposures are extensive. Working with individual clients presents fewer professional exposures than working with corporate clients. The exposure increases if the stockbroker fails to conduct thorough background checks to verify employees' credentials, education, and licensing, ignores or has inadequate error checking procedures, or allows clerical workers to do tasks that only professionals should handle such as putting in orders or offering investment advice.

Firms that perform their own analyses, or prepare prospectuses for new offerings, present a higher risk than those that simply provide access to analyses done by others. The handling and sharing of information not generally available to the public is a serious exposure, sometimes resulting in allegations of insider trading. Ongoing training must be required for all employees.

Policy and procedure manuals should be updated regularly. Very serious losses may result from failure to document decisions and actions or to secure client approval. All employees must be supervised and monitored, and MUST take at least one consecutive week of vacation a year.

Property exposures are generally limited to that of an office, although there may be some incidental storage or an area for meetings. Ignition sources include electrical wiring, heating and air conditioning systems, wear, and overheating of equipment. Computers and other electronic equipment may be targets for theft.

Crime exposure is from employee dishonesty, which can be quite serious as stockbrokers frequently have access to their clients' personal and proprietary information, including investment accounts. Potential for theft, directly or by means of identity theft, is great.

Hazards increase without proper background checks, along with monitoring procedures and securing of all records to prevent unauthorized access. All job duties, such as ordering, billing and disbursing, should be separate and reconciled on a regular basis.

Receipts should be issued for any cash payments received. Bank deposits should be made on a timely basis to limit the buildup of cash on premises. Audits should be performed at least annually. All transactions should be handled in accordance with SEC guidelines.

Inland marine exposures consist of accounts receivable if the stockbroker offers credit, computers, and valuable papers and records for customers' and vendors' information. Clients' records and approvals are typically originals that are difficult to re-create.

Power failure and power surges are potentially severe hazards. A morale hazard may be indicated if the stockbroker does not keep valuable papers and disks in fireproof file cabinets to protect them from smoke, water, and fire. Duplicates should be kept off-site to allow for re-creation in the event of a loss.

Workers compensation exposures are generally limited to those of an office. Since work is done on computers, potential injuries include eyestrain, neck strain, carpal tunnel syndrome, and similar cumulative trauma injuries that can be addressed through ergonomically designed workstations. Some stockbrokers travel extensively for sales presentations and similar activities. Workers can be injured by slips and falls at clients' premises or in automobile accidents.

Business auto exposure is generally limited to hired and non-owned. If vehicles are provided to employees, there should be written procedures in place regarding personal use by employees and their family members. All drivers must have appropriate licenses and acceptable MVRs. Vehicles must be maintained, and records kept in a central location.

What Does Stockbrokers Insurance Cover & Pay For?

Stockbrokers can be sued for various reasons, including negligence, misrepresentation, unauthorized trading, churning, and failure to diversify. Insurance policies, such as Errors and Omissions (E&O) insurance and Directors and Officers (D&O) insurance, can help protect them by covering legal costs, settlements, and judgments that may arise from these lawsuits. Here are some examples:

Negligence: A stockbroker may be sued for not exercising the necessary care and skill when making investment decisions on behalf of their clients. E&O insurance can help pay for legal defense costs, settlements, and any judgments awarded against the stockbroker, thus protecting their financial position.

Misrepresentation: If a stockbroker provides inaccurate or misleading information about an investment, they can be sued for misrepresentation. E&O insurance would cover the costs associated with defending the stockbroker in court and paying any resulting settlements or judgments.

Unauthorized trading: Clients may sue stockbrokers for executing trades without their permission or knowledge. E&O insurance can help by covering the legal costs associated with such claims, as well as any resulting financial settlements or judgments.

Churning: This is the excessive trading of a client's account to generate more commissions, which is illegal and unethical. If a stockbroker is sued for churning, E&O insurance can help cover the legal expenses and any monetary damages awarded to the client.

Failure to diversify: Stockbrokers have a fiduciary duty to ensure their clients' portfolios are properly diversified. If a stockbroker fails to do so and the client suffers financial losses, they may be sued. E&O insurance can help by covering the costs of legal defense, settlements, and judgments related to the lawsuit.

In all these cases, insurance policies like E&O and D&O insurance can help protect stockbrokers by covering legal costs, settlements, and judgments arising from lawsuits. However, it's important to note that these policies typically don't cover intentional or fraudulent acts by the insured party.

Commercial Insurance And Business Industry Classification

• SIC CODE: 6211 Security Brokers, Dealers, And Flotation Companies
• NAICS CODE: 523120 Securities Brokerage, 523110 Investment Banking and Securities Dealing
• Suggested Workers Compensation Code(s): 8810 Clerical Office Employees NOC

Description for 6211: Security Brokers, Dealers, And Flotation Companies

Division H: Finance, Insurance, And Real Estate | Major Group 62: Security And Commodity Brokers, Dealers, Exchanges, And Services | Industry Group 621: Security Brokers, Dealers, And Flotation

6211 Security Brokers, Dealers, And Flotation Companies: Establishments primarily engaged in the purchase, sale, and brokerage of securities; and those, generally known as investment bankers, primarily engaged in originating, underwriting, and distributing issues of securities. Establishments primarily engaged in issuing shares of mutual and money market funds, unit investment trusts, and face amount certificates are classified in Industry Group 672. Establishments primarily engaged in providing investment advice on a contract or fee basis to establishments which deal in financial contracts are classified in Industry 6282.

• Agents for mutual funds
• Bond dealers and brokers
• Distributors, security
• Floor traders, security
• Investment bankers
• Investment certificates, sale of
• Investment firm-general brokerage
• Mineral leases, dealers in
• Mineral royalties, dealers in
• Mortgages, buying and selling (rediscounting)
• Mutual fund agents
• Mutual funds, selling by independent salesperson
• Note brokers
• Oil and gas lease brokers
• Oil royalties, dealers in
• Option dealers, stock
• Sale of partnership shares in real estate syndicates
• Security brokers
• Security dealers
• Security flotation companies
• Security traders
• Security underwriters
• Stock brokers and dealers
• Tax certificate dealers

Stockbrokers Insurance - The Bottom Line

For more information about the type of coverage to consider, as well as how much stockbrokers insurance coverage you'll need, speak with an insurance broker that specializes in commercial insurance.

Additional Resources For Professional Services Insurance

Get informed about small business professional services insurance, including Professional liability, aka errors and omissions (E&O insurance), that protects your business against claims that a professional service you provided caused your client financial loss.

• Accounting
• Actuaries
• Answering Service
• Architects
• Armored Car
• Attorney Lawyer
• Auctioneer
• Auditor
• Background Music Services
• Bookkeeping
• Business Consulting
• Chemical Engineers
• Civil Engineers
• Claims Adjuster
• Commercial Laundries
• Commodity Broker
• Corporate Wellness
• Couriers
• Court Reporter
• Credit Bureaus
• Debt Collection Agency
• Draftsman
• Detective Agency
• Diaper Services
• Electrical Engineering
• Engineering
• Environmental Consultant
• Executive, Career & Life Coaching
• Executive Search Firm
• Expert Witness
• Financial Planner
• Financial Services
• Funeral Directors
• HR Consultant
• Inspection Bureaus
• Insurance Agents & Brokers Insurance
• Interpreter
• Mediator - Arbitrator
• Medical Billing
• Music, Drama & Dance Therapy
• Notary
• Office Machine Repair & Maintenance
• Piano Tuners
• Project Management
• Safety Consultants
• Speakers Bureaus
• Stockbrokers
• Surveyor
• Tax Preparer
• Temporary Staffing
• Title Abstractors
• Valet Parking
• Specialty Consultants
• Specialty Service Business

The professional services industry, which includes occupations such as lawyers, doctors, accountants, and architects, often deals with sensitive and complex issues that carry a high risk of liability. These professionals are expected to provide their clients with expert advice and guidance, and any mistakes or oversights can result in significant financial consequences for both the client and the professional. This is where insurance comes into play.

Business insurance provides protection against the financial repercussions of potential mistakes or accidents that may occur while providing professional services. For example, a lawyer may make an error in their legal representation that leads to a financial loss for their client. Without insurance, the lawyer would be personally responsible for covering the cost of this loss. Insurance helps to protect professionals from these types of financial burdens and allows them to focus on providing high-quality services to their clients.

In addition to protecting against financial losses, commercial insurance can also provide legal defense for professionals facing legal action as a result of their work. This can be especially important for professionals in high-stress or high-risk fields, such as doctors or architects, who may be at a higher risk of being sued for professional negligence.

Overall, the professional services industry needs insurance to protect against financial losses and legal action, ensuring that professionals can continue to provide high-quality services to their clients without the added stress and burden of potential financial consequences.

Minimum recommended small business insurance coverage: Business Personal Property, Employee Dishonesty, Accounts Receivable, Computers, Valuable Papers and Records, General Liability, Employee Benefits Liability, Professional Liability, Umbrella Liability, Hired and Non-owned Auto Liability & Workers Compensation.

Other commercial insurance policies to consider: Building, Business Income with Extra Expense, Earthquake, Equipment Breakdown, Flood, Computer Fraud, Forgery, Money and Securities, Special Floater, Cyber Liability, Employment-related Practices Liability, Business Auto Liability and Physical Damage and Stop Gap Liability.