Don't 100% trust your financial advisor? There's insurance for that.

Discussion in 'Wall St. News' started by dealmaker, Mar 12, 2019.

  1. dealmaker


    Bernie Madoff outside of Federal Court in 2009. (Photo by Hiroko Masuike/Getty Images)
    On March 12, 2009, Bernard Madoff pleaded guilty to perpetrating the largest Ponzi scheme in history, a fraud of almost $65 billion.

    In a coincidence 10 years later, a few former victims of embezzlement — not Madoff’s — are launching a type of insurance to protect against unscrupulous financial-services professionals.

    “The genesis of everything is always personal,” Travus Pope, a co-founder and managing partner, told Yahoo Finance. Pope and two other Capital Shield co-founders lost around $1.5 million between the three of them due to embezzlement.

    “They collected zero dollars from them,” Pope said. “I got a judgment, but they filed for Chapter 7 [bankruptcy] two days before. Recouped zero, still pursuing,” he said.

    Pope and his partners shopped their idea of an embezzlement insurance around, and found Berkley FinSecure to underwrite. (Berkley FinSecure is owned by insurance holding company W.R. Berkley.)

    The uniqueness of the product makes it difficult to appraise, so the terms are simple: $1,500 per million, per year, with a maximum of $10 million — for now. (After a launch period, the company may expand this.)

    “There is no actuarial pool for this,” said Pope. “There’s always been an issue when you protect institutions, but there’s never been coverage for an individual.”

    The numbers come from the underwriter’s crime insurance policies for banks and broker dealers, which Pope said gives them some insight into how likely payouts may be.

    If something happens, there’s a deductible of $50,000 that has to be paid first. But from there, if there is a criminal offense that causes a loss and most critically, an indictment, the policy would kick in and pay. Pope is quick to clarify that this is not for bad investment or financial decisions, but rather for crimes by financial professionals. (Capital Shield policies cover “securities industry professionals that serve as investment advisors, asset managers, fund managers for the investor’s invested assets and must be individually named on the policy.”)

    Woodbridge Ponzi scheme, in which unregistered brokers took advantage of people, would have been avoided." data-reactid="32">This is an important point. A Theranos situation, for example – where investors and customers invested and lost hundreds of millions because the company’s blood testing innovations were faked – would not be protected. But falling victim to the $1.2 billion Woodbridge Ponzi scheme, in which unregistered brokers took advantage of people, would have been avoided.

    That’s because Woodbridge would have failed the underwriting standards of the policy, given the unregistered advisors, something a Capital Shield client would be told upon application. This is the other role, and big selling point Pope highlights. It’s a filter – when you apply for the insurance policy, you supply the name of your financial advisors, and Capital Shield runs its own due diligence.

    “The simplicity is the beauty. You put the folks in, [Berkley] looks at it. Maybe someone’s license lapsed,” he said. If the person appears legitimate, the policy goes forward. If it turns out the advisor is a criminal, the company pays. “With someone like Bernie Madoff [a client] would have been fully protected,” he said.

    money managers." data-reactid="35">At $1,500 per year per million, there is the question of who it’s for. The premium is 0.15% of the amount protected, but the unlikelihood of an embezzlement might make it a tricky sell to average investors. It probably makes more sense for higher-profile people like actors and professional athletes, who have run into trouble with shady money managers.

    The insurance will be available on the company’s website and through various local insurance providers.


    Ethan Wolff-Mann[/a] is a writer at Yahoo Finance focusing on consumer issues, personal finance, retail, airlines, and more. Follow him on Twitter @ewolffmann.
    murray t turtle, vin2018 and kmiklas like this.
  2. vin2018


    This is really good news. Gives some hope for the investors.
  3. schweiz


    When it will happen there will be a lot of clauses in very small letters in the contract for not paying you.

    Guilt should be clear and confirmed by the court.
    You should proof you made no mistakes.
    You should proof you did everything to avoid the loss.

    The lenght of the list will depend of how good the lawyer of this insurance is.
    murray t turtle likes this.
  4. Biggest fraud in history is Vlad Putin and his con artists.Bernie a little kid in compare.
    murray t turtle and schweiz like this.
  5. %%
    Plenty of insurance companies are like that Schweiz.
    Some look @ both side of the trade; + if you have a loss they pay, because its the right thing to do.And they want fair treatment in a deal ; that's what premiums are paid for. Some people are so crazy,now days, a rip off could result in wrongful death ,or in most cop shootings, a good shot on the crooks.:cool::cool: