Case Study – Broker Dealer

June 8, 2010


As a Broker-Dealer, professional liability coverage should be a necessity, both for you and your Registred Representatives. Your registered representatives deal directly with your clients as your agent. If they make a mistake, or are even accused of making one, you can be held responsible.

Many of your registered representatives will also have their own clients, as life insurance agents, financial planners, and investment advisors. Even if these clients are not your clients, you are likely to be sued for failure to adequately supervise your registered representatives. If they are not insured, you may be held responsible, simply because you have the ability to compensate the injured claimants. Therefore, it is important that you and your registered representatives have comprehensive professional liability and fidelity coverage.

ProSurance Group understands your insurance needs. We can insure you, your registered representatives, and your affiliated life insurance agencies and registered investment advisors. We will discuss with your insurance agent or with you directly what type of coverage you and your registered representatives require and how to best design a policy that offers you maximum protection at a reasonable cost.

“The registered representative and his broker-dealer were required to give the investor all of this money back.”

Even a Broker-Dealer with the most attentive, comprehensive compliance and supervisory system can innocently become involved in a professional liability claim.


Over the course of several years, a Registered Representative invested stocks and bonds for a wealthy buisnessman. The businessman became interested in diversifying his portfolio into real estate, so the representative suggested a suitable property. He informed the businessman that he had not performed the necessary due diligence on the property, but had successfully dealt with the general partner on previous projects. After personally visiting the property and interviewing the firm’s general partner, the businessman invested $300,000. Over the next few years, the project ultimately failed and this man lost all of his investment.

The businessman sued the broker-dealer for failing to supervise its registered representative and the registered representative for recommending unsuitable investments, for which he had failed to provide complete disclosure and did not perform the necessary due diligence. After years of discovery and four weeks of trial, the jury concluded that the Registered Representative and his broker-dealer were required to give the investor all of this money back, with interest, and pay his legal fees. The total cost was more than $1,300,000 on a $300,000 investment.


Leave a Reply

You must be logged in to post a comment.

Why ProSurance Group Inc.

Prosurance Group, Inc. is an organization experienced in protecting Financial Service Professionals.

We'll help you through:
  • Innovative policy terms
  • Flexible underwriting
  • Competitive financing
  • Sound financial backing
  • Responsive claims service
No One Expects To Be Sued
But as a financial professional, you and your firm could be. Clients rely on your knowledge and expertise to help them and you may be liable for any mistakes you might make. No matter how carefully you perform your job, your daily activities can put your career and financial existence at risk. At any moment, in any situation, an unhappy client can bring a complaint against you.