JESSICA THAYER: Hello, my name is Jessica Thayer, and I'm a senior vice president and practice leader at Starkweather & Shepley Insurance. Today, I want to talk about fidelity bonds.
Fidelity bonds are a type of insurance that covers loss of money, securities, and other property against malicious actors, either theft by your employees, or fraud committed by others. A fidelity bond typically factors in the overall policies and procedures at your firm, transfer verification procedures, such as callbacks, the number of employees at your firm, revenues, assets under management, and loss history. Basically, the stronger your policies and procedures, the lower your risk. But larger firms need more protection against their losses.
A growing risk for RIA firms is social engineering, or cyber transfer fraud. That's when a hacker gains access to information and accounts, and then impersonates a client in order to authorize a transfer. Many insurers charge an additional premium for this coverage.
One example of social engineering loss came in from a firm that seemed to do everything right. The firm received a request to transfer funds. The request included all the right personal information, and when the office staff did a call back to okay the transfer, the person on the line verified it. Months later when the client received a quarterly statement, they found that $200,000 was missing. When we looked back at the digital paper trail, we found that a hacker had stolen the client's information elsewhere, then used it to change the client's email address and call back number on record with the firm. As a result, the insurer paid $200,000 for that loss.
You can do a lot to prevent fraud, but tricky cases do come up. A fidelity bond can give you and your clients peace of mind, knowing your assets under management are protected from thieves.