Running a family office or managing client assets isn’t just about making smart investment decisions — it’s about managing risk at every level. While these firms focus on protecting their clients’ wealth, they also need to ensure their own business and leadership are protected.
In this two-part series, we break down the key insurance policies every financial institution (FI) — from family offices to fund managers — should have in place to safeguard against costly claims.
First up: Directors & Officers (D&O) and Professional Indemnity (PI) insurance — and why having both is essential for complete protection.
What is D&O insurance and why do FIs need this policy?
D&O insurance protects the personal liability of directors, partners, and senior management for claims made against them in their capacity as company leaders.
This includes claims such as:
- Alleged mismanagement or breach of fiduciary duty
- Failure to supervise or ensure proper compliance
- Misrepresentation to investors or regulators
- Employment-related allegations against leadership
Example:
A fund’s director is accused by investors of failing to disclose a material conflict of interest in an investment decision. The investors sue both the company and the director personally.
The D&O policy can cover the director’s defence costs and settlements (subject to exclusions such as fraud or intentional acts).
Why it matters:
Even if you have limited liability through your corporate structure, regulators and investors can still pursue individuals. D&O insurance ensures that personal assets aren’t at risk when defending professional decisions made in good faith.
What is PI insurance and why do FIs need this policy?
PI insurance protects the firm against claims arising from professional errors, negligence, or omissions in providing investment or advisory services.
This includes claims such as:
- Incorrect or misleading investment advice
- Breach of investment mandates or fiduciary obligations
- Operational errors or administrative mistakes
- Misrepresentation in offering materials or reports
Example:
A family office is accused of breaching its investment mandate after misallocating funds to high-risk private equity that was meant for a conservative portfolio. When the investments underperformed, the family sued for negligence and mismanagement.
The PI policy can cover the firm’s defence costs, settlements, or awards related to that alleged professional error.
Why it matters:
Even the best-run investment teams face potential disputes from clients or investors. PI insurance safeguards the company’s balance sheet against the cost of defending and resolving these claims.
Why do FIs need both D&O and PI policies concurrently?
D&O protects management from the wrongful acts committed in their role of managing the company. PI protects the company from the wrongdoing in providing their professional services. It is very common to see an exclusion in D&O policies for claims resulting from professional services. Vice versa, it is very common to see an exclusion in PI policies for claims related to management liability.
When it comes to firms operating as FIs, claims can sometimes fall in a grey area crossing the lines across both D&O and PI. For example:
A fund manager was accused by investors of allocating a lucrative investment opportunity to one fund over another, allegedly favouring certain clients. Investors in the disadvantaged fund claimed losses due to poor governance and breach of fiduciary duty.
This situation sits in the grey area:
- The decision-making and oversight failure could trigger a D&O claim (a management-level wrongful act).
- The execution and advisory process behind the investment recommendation could also be viewed as a PI claim (a professional service error).
Both insurers might argue about which policy should respond first, especially if the allegations involve both management discretion and advisory conduct. This is why we recommend having both D&O and PI policies taken out by the same insurer. In fact, some specialty insurers have packaged ‘Investment Manager Insurance’ that includes both covers under the one policy, designed to prevent any gaps, confusion and delays in claims payments.
Whether you’re a family office, fund, or investment manager, our experienced team knows the risks you face — and how to cover them. Reach out to start the conversation.
