FINANCIAL ADVISOR S GUIDE TO PROFESSIONAL LIABILITY PROGRAM FOR LPL FINANCIAL CORPORATION. LPL Financial Corporation Member FINRA/SIPC

Transcription

1 FINANCIAL ADVISOR S GUIDE TO PROFESSIONAL LIABILITY PROGRAM FOR LPL FINANCIAL CORPORATION Member FINRA/SIPC June 30, 2009 to June 30, 2010 INSURANCE CARRIER: Continental Casualty Company (C N A)

2 CONTENTS WHAT IS PROFESSIONAL LIABILITY INSURANCE? WHAT IS COVERED?... 3 WHAT IS NOT COVERED?.. 3, 4 OTHER POLICY FEATURES 4, 5 WHAT TO DO IN THE EVENT/THREAT OF A CLAIM 5 PRIOR ACTS DISCUSSION. 6 OBTAINING EVIDENCE OF INSURANCE 6 CONTACT DIRECTORY.. 7 SPECIMEN POLICY DECLARATIONS - ATTACHMENT A.. 8, 9

3 WHAT IS PROFESSIONAL LIABILITY INSURANCE? Also known as errors and omissions insurance ( E&O Insurance ), professional liability insurance provides protection against allegations of a wrongful act. Securities Brokers/Dealers and their Advisors can be sued for a variety of reasons. For example, suitability allegations can arise in connection with the offering of brokerage services, investment management services and annuity products or the giving of financial advice. A key feature of professional liability coverage is that the policy also provides for a defense against such allegations. WHAT IS COVERED? The policy provides for coverage including defense for claims alleging an error or omission in rendering or failing to render a professional service as defined in the policy. Investment advisory activities approved in writing by ( LPL Financial ) and engaged in through the Financial Advisor s Registered Investment Advisor also are included for coverage. In addition, certain types of insurance activity placed directly by the financial advisor, including Life, Accident and Health Insurance sales are included for coverage. WHAT IS NOT COVERED? The policy contains a variety of exclusions that eliminate coverage for certain activities and events. The following is a brief summary of certain exclusions but not a complete listing. Please direct any specific inquiries regarding detailed policy language to LPL Financial s Legal Department. Criminal acts Bodily injury, sickness, disease or death of any person Libel, slander, defamation Damage to physical property Wrongful acts occurring prior to June 30, 1993 or prior to the financial advisor s contract date with LPL Financial, whichever is most recent. Disputes over fees, commissions or other charges Claims from underwriting, syndicating, investment banking, mergers, acquisitions, divestitures, tender offers, leveraged buy-outs and other related activities Violations of the Insider Trading and Securities Fraud Enforcement Act of 1988 Activities as a Specialist or Market Maker for any securities Commodities trading (except commodities limited partnerships) - 1 -

4 Trading outside the USA Failure of mechanical or electronic systems Fines, penalties or taxes Illegal personal profit or advantage Claims brought by the Securities Investor Protection Corp. Property/Casualty insurance activities Third Party Administrator activities Accounting, actuarial or real estate agent/broker activities Transactions/Activities not authorized or approved by LPL Financial Option trading (except covered call options and puts to hedge) Claims relating to or arising out of the financial advisor s prior employment Promissory Notes Viatical Products except Life Settlement Contracts (a lump sum cash settlement paid to policyholder where Insured is over 65 and does not have terminal or chronic illness) OTHER POLICY FEATURES CLAIMS MADE COVERAGE: Coverage is provided on a claims made and reported basis that covers claims first made and reported during the policy period. Prompt reporting of any potential claims is very important. DEDUCTIBLES: Financial advisors are required to pay a deductible for each claim. The deductible applies toward the payment of defense costs and damages. Financial advisors are subject to the following deductibles based upon the investment losses alleged in the claim (excluding interest, punitive damages, loss and attorney fees): Alleged Losses Deductible Up to $100,000 $10,000 $100,001 to $250,000 $15,000 $250,001 to $500,000 $20,000 $500,001 to $1 million $25,000 Over $1 million $30,000 Trade Errors $30,000 Claims naming only the Financial Advisor $50,000 for approved outside insurance and advisory activities - 2 -

5 LIMITS OF COVERAGE: Claims involving LPL Financial: The limits of liability are $5,000,000 per claim. The policy also features an annual policy aggregate limit of $30,000,000. The aggregate limit does not apply to Financial Advisors who are resident of or practice in New York State. Claims naming only the Financial Advisor but for Approved Outside Activities: The limits of liability are $2,000,000 per claim with an annual policy aggregate limit of $10,000,000. The aggregate limit does not apply to Financial Advisors who are resident of or practice in New York State. WHO IS INSURED? Financial Advisors and their companies, including administrative or clerical employees of Financial Advisors while acting on behalf of LPL Financial. WHAT TO DO IN THE EVENT/THREAT OF A CLAIM The claims made provisions of the policy make it critical to report claims, including potential claims on a timely basis. Please observe the following procedures: 1. As soon as you are aware of any circumstances that may lead to a claim, immediately notify LPL Financial s Legal Department. Ashley Commito: (800) extension If a summons and complaint have been issued, send both along with your cover letter, providing as much detail as possible, to: LPL Financial, attention: Stephanie Brown or David Freniere, at the Boston home office address. Also, please be sure to provide copies of all customer account documents relating to the allegations. Remember, in litigated or arbitrated matters, there is a predetermined response time. Therefore, please telephone the Legal Department within 24 hours of being served with a lawsuit or arbitration claim. 3. In every case, once the situation has been identified as a professional liability claim, great care should be exercised to avoid any disclosures or discussion of any facts or information related to the claim with anyone other than LPL Financial

6 PRIOR ACTS DISCUSSION Coverage for financial advisors begins on their contract date with LPL Financial. Financial advisors interested in avoiding a gap in coverage when leaving a firm to join LPL Financial should discuss tail coverage with the firm they are leaving. Tail coverage allows for the reporting of unknown claims to the previous insurance company for a designated period of time, usually 1 to 3 years. Typically, there is a charge for the purchase of tail coverage. LPL Financial has a separate coverage program structured for prior firm tail coverage for new financial advisors as well. For information, please contact Guilda Mora at Barney and Barney. Her telephone number is OBTAINING EVIDENCE OF INSURANCE Evidence of E&O coverage is available through LPL Financial s BranchNet Resource Center. Go to Regulatory and then click on Registration, under the heading of Insurance is the LINK for E&O Certificate Requests. A certificate will be returned to you via or fax or call Eileen Pembroke in the Legal Department at , extension Be prepared to identify the reason for providing proof of insurance. Certificates of insurance can generally be prepared and ed or faxed within 72 hours of the formal request. Be sure to include any unusual requirements or special forms that may be requested by the party demanding proof of coverage

7 CONTACT DIRECTORY QUESTIONS ON ENROLLMENT AND PROGRAM FEE: Eileen Pembroke (800) x4293 COVERAGE QUESTIONS: Legal Department (800) Boston or Barney and Barney LLC (800) Janet Humphrey Debora Walker John Niedernhofer TO REPORT A CLAIM OR POTENTIAL CLAIM: (800) Jennifer Carpenter x4255 Peter Gillies x4166 Amanda Hawley x4715 Brad Jacobs x4717 Nancy Ghabai x4209 Stephanie Brown x4340 David Freniere x4286 James Vannah x4485 Kirsten Patzer x

8 Attachment A GROUP PROFESSIONAL LIABILITY INSURANCE POLICY FOR FINANCIAL ADVISORS OF LPL FINANCIAL CORPORATION Coverage is provided by the company identified below: Continental Casualty Company (C N A) NAMED INSURED: BROKER: INSUREDS: One Beacon Street, 22 nd Floor Boston, MA Barney and Barney LLC Financial Advisors of LPL Financial Corporation POLICY PERIOD: POLICY NUMBER: LIMITS OF LIABILITY: From: 6/30/09 To 6/30/10 At 12:01 a.m. standard time at your address shown above $5,000,000 each wrongful act and aggregate per financial institution $30,000,000 policy aggregate The aggregate limit does not apply to Financial Advisors who are resident of or practice in New York State. Except Claims naming only the Financial Advisor for Approved Outside Activities: $2,000,000 each wrongful act $10,000,000 policy aggregate - 6 -

9 PROGRAM FEE: DEDUCTIBLE: $2, annually, billed quarterly $ annual additional fee for Financial Advisors engaging in approved outside RIA or Life and Health Insurance activities. Financial Advisors are required to pay a deductible for each claim. The deductible applies toward the payment of defense costs and damages. Financial advisors are subject to the following deductibles based upon the investment losses alleged in the claim (excluding interest, punitive damages, loss and attorney fees): Alleged Losses Deductible Up to $100,000 $10,000 $100,001 to $250,000 $15,000 $250,001 to $500,000 $20,000 $500,001 to $1 million $25,000 Over $1 million $30,000 Trade Errors $30,000 Claims naming only $50,000 the Financial Advisor for approved outside insurance and advisory activities - 7 -