FAQs

Here are some frequently asked questions by subject area.

Investment Advisers

Errors & Omissions Liability

What's the difference between Errors & Omissions Insurance and Fiduciary Liability Insurance?
As described above, the typical Errors & Omissions policy protects advisers against losses due to any actual or alleged negligent act, error or omission committed in the scope of their duties as investment counselors/advisers. By contrast, Fiduciary Liability Insurance is a subcategory of Errors & Omissions Insurance which provides additional coverage against a breach of duty by a fiduciary. For example, an adviser's failure to diversify an ERISA plan's assets or his violation of the "Prudent Investor Rule" would qualify as a breach of duty by a fiduciary. Those breaches can only be covered by purchasing an Errors & Omissions policy which includes Fiduciary Liability Coverage.

Fidelity bonds

What's the difference between a Fidelity Bond and an
ERISA/Fiduciary Bond?
An ERISA/Fiduciary Bond is simply an amended Fidelity Bond; both respond to claims involving dishonest acts but the ERISA Bond complies with the specific requirements of ERISA law. Liftman Insurance offers ERISA bonds for a firm’s own pension/profit sharing plan as well as for client ERISA plans.

Note that an ERISA/Fiduciary Bond is required under Section 412(a) of the Employee Retirement Income Security Act of 1974 which mandates that every fiduciary of an employee benefit plan and every person who handles funds or other property of such plan must be bonded. The amount of the bond must be at least $1,000 and must never be less than 10% of the amount of the funds handled by the fiduciary up to a maximum of $500,000 per plan.

How do Fidelity and ERISA/Fiduciary Bonds differ from Errors & Omissions Insurance?
While Fidelity and ERISA/Fiduciary Bonds cover dishonest acts by a fiduciary, Errors & Omissions Insurance provides advisers with coverage against losses due to any actual or alleged negligent act, error or omission committed in the scope of performing their professional services.

Securities Broker/Dealers

STAMP/SEMP Surety Bonds

Does my firm does need a STAMP Surety bond?
According to sec Rule, Ad-15, all transfer agents are required to have a guarantee pf signature before a security can be sold or otherwise transferred. If your firm engages in such activities, a STAMP surety bond would protect the investor, the issuer or transfer agent against fraud. By participating in one of these programs, your firm can be assured that your guarantee will be immediately accepted for processing.

What is the difference between a STAMP and SEMP Bond?
If your firm is a member of a particular stock exchange, your medallion would identify the name of that stock exchange and you would be required to carry a SEMP surety bond. However, if your firm is not a member of a particular stock exchange, you can apply for the STAMP program and would need to secure a STAMP surety bond.

How much coverage does my firm need?
The liability limit of your STAMP bond should be equal to the largest security transaction with a signature guarantee.