Professional indemnity insurance (BAV) for a financial advice firm
For an advice firm with a Wft licence this insurance is not a choice but a condition of being allowed to operate. What it contains is a choice.
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In brief
Anyone who advises on or arranges financial products needs, under Article 4:75 of the Dutch Financial Supervision Act (Wft), professional indemnity insurance or a comparable arrangement. That does not end the discussion, because the law sets the requirement and the policy determines the content. The core of your risk lies in the Article 4:23 of the Dutch Financial Supervision Act (Wft): you must obtain information about the client's financial position, knowledge, experience, objectives and attitude to risk, and make your advice fit that. Almost every claim in this sector starts with the assertion that this did not happen.
The loss is always pure financial loss. A business owner who discovers after becoming unfit for work that his cover does not match his occupation, a client who made a pension choice without the survivor's element being discussed, a director-shareholder who is told that a pledged policy does not do what he thought: in all those cases nothing is damaged and no one is injured. For that reason alone, the public and employers' liability insurance is not the policy that pays here.
What makes an advice firm particularly vulnerable is aftercare. Advice is not a snapshot. In an ongoing relationship the client is entitled to expect you to flag it when his situation or his product changes. Complaints about this come years later, through Kifid (the financial services complaints institute) or through a lawyer. That makes the retroactive period and the description of your professional capacity more important than the sum insured. For self-employed professionals working under your licence, see professional liability for financial advisers.
This page deals with one situation. The full overview is on Compare professional indemnity insurance (BAV).
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Get coveredWhy arrange it through Finass Verzekert?
We look at the terms as well as the premium, and stay your point of contact when there is a claim.
Independent
We are not tied to one insurer and compare on the basis of an objective analysis of several companies.
One fixed adviser
You call or email someone who knows your file. No menu options, no changing call centres.
Switching without hassle
We cancel your old policy and align the start date, so you are never a day without cover.
Help with claims
We report the claim and monitor how it is handled. In urgent cases you can reach us on the emergency line.
What to look out for
Four subjects that lead to a dispute over payment in this profession more often than the mistake itself.
The client file is your defence
When a complaint arrives, everything turns on what you established and what you discussed. If there is no record of the client profile, the advice report or the rejection of a recommended cover, you are empty-handed. Also record what the client decided against your advice, with his confirmation attached.
Every product group is a separate risk
Mortgages, income protection, pensions and wealth building each have their own claims pattern. The policy only covers what falls within the stated business activity. If you extend your licence or start advising on a new product group, report it at once; otherwise a gap arises that only becomes visible when a claim comes in.
You are liable for your advisers
A mistake by an employee is attributed to you through Article 6:170 of the Dutch Civil Code, and a mistake by a third party you engage through Article 6:76 of the Dutch Civil Code. Make sure that staff, seconded workers and self-employed professionals advising in your name are within the class of insured persons, and keep their professional competence demonstrably up to date. An insurer will test that on a large claim.
The exclusions in a row
Excluded are, among others administrative fines, orders subject to a penalty and the cost of remedial action required by a regulator, refunding your own commission or fee, and liability under guaranteed returns or promised outcomes. Advice outside your licence is not insured, nor are intent and wilful recklessness; Article 7:952 of the Dutch Civil Code provides the basis for that. A disappointing investment result in itself is not a professional error either.
What does your premium depend on?
- Annual turnover and commission income: the usual basis
- Licensed product groups: complex products weigh more heavily than general insurance
- Number of advisers: including hired-in staff working in your name
- Size of the existing portfolio: determines the volume of aftercare obligations
- Claims history and complaints: earlier claims and Kifid files
- Retroactive date: an earlier retroactive date increases the premium
Insurers weigh these details differently. That is where your saving is.
What is covered
| Situation | AVB | BAV |
|---|---|---|
| A client turns out to have no survivor's cover because that choice was never discussed | No | Yes |
| Your adviser damages the client's laptop during a meeting on site | Yes | No |
| A mortgage application is submitted late and the interest rate offer lapses | No | Yes |
| An heir brings a claim against your firm about advice given to the client, who has since died | No | Provided that |
| The hours your firm spends putting an incomplete client file in order after the event | No | No |
| A member of staff misappropriates a client's money | No | No |
In advice complaints the retroactive and run-off periods weigh more heavily than the sum insured, because an allegation is often only made years later.
Frequently asked questions
This is what people ask us most.
Is this insurance compulsory for our firm?
For financial service providers who advise or arrange, Article 4:75 of the Dutch Financial Supervision Act (Wft) requires professional indemnity insurance or an equivalent arrangement. Exactly what that policy must cover and which periods apply is not fully laid down in the law. So have it checked that your cover matches all the product groups for which you hold a licence.
A client complains about advice from long ago. Is that covered?
That depends on your retroactive date. A claims-made policy covers claims that come in during the policy period, provided the mistake was made after the retroactive date. If the advice predates it, there is no cover. Whenever you move to another insurer, expressly ask for the same or an earlier retroactive date, otherwise you lose your history.
Does the policy also pay the cost of Kifid proceedings?
Defence costs are usually included, but generally within the sum insured and not on top of it. That means that lengthy proceedings reduce the room available for the compensation itself. So report a complaint early, so that the insurer can steer the handling. Do not attempt a settlement without consulting them, because that can affect your cover.
We are selling our firm. What happens to old liability?
Complaints about advice given before the transfer stay with the advising entity, unless the purchase agreement provides otherwise. Without run-off cover you face them privately or as a company. Arrange the run-off period before the policy is ended and record in the transaction who insures the past. Buying run-off cover afterwards almost never works.
Every situation is different. For these situations we have a separate page.
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