Every Trade, Every Recommendation, Every Rep — You Supervise It All.
Protecting FINRA-registered securities firms and their principals
You buy and sell securities — for customers, for your own account, or both — under one of the most prescriptive regulatory regimes in business. Your defining feature is FINRA membership and the supervisory duty that comes with it: you are responsible not only for your own conduct but for supervising every registered representative, and most disputes are resolved not in court but in FINRA arbitration. That combination of securities E&O, a mandatory fidelity bond, supervisory liability, and customer arbitration separates you from an ordinary financial firm. Your coverage has to be built around securities professional liability, a FINRA-compliant fidelity bond, and management liability, sized to your business lines and rep count.
Picture a retiree's account that a rep concentrated in a single illiquid product. The customer files a FINRA arbitration alleging the recommendation was not in her best interest under Reg BI, and names your firm for failing to supervise. The defense is a securities E&O claim, and the policy has to cover the arbitration forum, not just court.
The Broker-Dealer's Signature Exposures
Your defining exposure is securities professional liability and supervision. Customers bring claims — usually in FINRA arbitration — over suitability, unauthorized trading, misrepresentation, churning, and failure to supervise. Your fidelity bond (the FINRA-required blanket bond) responds to employee dishonesty and theft from customer accounts. Management liability (D&O) responds to claims against the firm and its principals, including regulatory enforcement. Cyber and privacy is a front-line peril given customer financial data and account-takeover fraud. Failure-to-supervise claims, where you are liable for a rep's conduct, are the exposure that most defines your business.
Key Risks Broker-Dealers Face
The most consequential risks include:
- Customer arbitration over suitability, unauthorized trading, or misrepresentation
- Failure-to-supervise claims for a registered representative's conduct
- Selling-away and outside-business-activity exposure from reps
- FINRA and SEC examination and enforcement
- Fidelity/theft loss from customer accounts (bond exposure)
- Cyber, account takeover, and breach of customer financial data
- Management-liability and regulatory claims against principals
The two that most define your risk are customer arbitration and failure-to-supervise liability.
Core Coverages for Broker-Dealers
A properly built broker-dealer program typically includes:
Securities Broker-Dealer Professional Liability (E&O) — Covers suitability, misrepresentation, supervision, and customer-arbitration claims.
Fidelity Bond (SEC/FINRA Blanket Bond) — Covers employee dishonesty and theft — the required broker-dealer bond.
Management Liability / D&O — Covers the firm and its principals, including regulatory enforcement.
Cyber & Privacy Liability — Covers account takeover, breach of customer data, and funds-transfer fraud.
Employment Practices Liability — Covers discrimination, harassment, and wrongful-termination claims.
Commercial GL/BOP & Umbrella — Cover premises and add limits over a large financial-lines claim.
What's Commonly Overlooked
Common weak spots in broker-dealer coverage like yours:
- E&O that doesn't match your actual business lines and products
- Fidelity bond below the FINRA-required minimum for your size
- Failure-to-supervise and selling-away exposure underinsured
- Coverage that doesn't extend to all registered representatives
- Cyber and account-takeover limits below the customer-account exposure
The gap that hurts most is a fidelity bond sized once and never revisited. Under FINRA Rule 4360, a firm with a required net capital under $250,000 needs coverage of at least the greater of 120% of that net capital requirement or $100,000, and larger firms follow a tiered table running from $600,000 up to $5,000,000. If your business lines, headcount, or net capital have changed, the minimum may have moved too.
Real-World Claim Examples
- A customer files a FINRA arbitration over an unsuitable recommendation, and securities professional liability pays the defense only if arbitration awards are covered and the policy is not limited by an investment-performance exclusion
- A registered rep engages in selling away, and the firm's liability is covered only if the policy does not exclude activities outside the scope of the rep's registered business
- A FINRA exam becomes an enforcement action, and the defense is covered only if regulatory proceedings are included, while fines and restitution are usually excluded from coverage
- An employee diverts funds from customer accounts, and the financial institution bond pays only if it covers customer property in the firm's custody and the loss is discovered during the period
- An account takeover exposes customer financial data, and cyber coverage pays notification and response, while the bond would exclude loss arising from data breach and the resulting regulatory costs
Each of these can be significant, and the customer-arbitration and supervision claims are the most distinctive.
Regulatory & Licensing Context
Broker-dealers register with the SEC and, in nearly all cases, are members of FINRA and covered by SIPC for customer protection. You must maintain a FINRA-compliant fidelity bond sized to your firm under Rule 4360, with any deductible capped at 25% of the coverage purchased and a deduction from net worth for net capital purposes above 10%. You must also follow the net-capital rule, and operate a written supervisory system with a designated principal. Your registered representatives hold Series licenses and are subject to your supervision. Suitability (Reg BI for retail), anti-money-laundering, books-and-records, and cybersecurity rules all bear directly on the E&O, bond, and cyber exposure, and your business lines drive how coverage must be built.
Why Proper Placement Matters
Underwriters weigh your business lines and products, number of registered representatives, retail versus institutional mix, supervisory system, disciplinary and arbitration history, and controls. Because the exposures are specialized and FINRA-driven, broker-dealers are placed through securities and financial-institution markets that write broker-dealer E&O, the fidelity bond, and D&O together and size the bond to FINRA requirements. Matching E&O to the actual business lines, meeting the bond minimum, and covering supervision are the essential steps. This sits within the broader investment company insurance family alongside hedge fund and PE managers and asset and wealth managers.
Our Approach
At Cory Washington & Co., we insure broker-dealers around the supervision and customer-account duties the business runs on — placing securities professional liability, a FINRA-compliant fidelity bond, and management liability sized to your business lines and rep count, with cyber and employment coverage to match. We build the program so it covers your registered representatives and coordinates with your broader investment company coverage.
You supervise every trade, every recommendation, and every rep — we build coverage to match, securities E&O and the fidelity bond included.
All insurance descriptions on this website are provided by Cory Washington & Co. LLC strictly for general informational purposes. They are not intended to be, and should not be relied upon as, legal, financial, or insurance advice. The information presented is general in nature and does not guarantee the availability, terms, conditions, or scope of any insurance coverage. Actual coverage is determined solely by the specific policy language issued by the insurer and remains subject to underwriting approval. Nothing on this website creates or implies an agent-client relationship, binds coverage, or alters any existing policy. Cory Washington & Co. LLC expressly disclaims any liability for actions taken, or not taken, based on the content provided here. For advice regarding your particular situation, please consult directly with a licensed insurance professional at Cory Washington & Co. LLC or another qualified insurance professional, and always review your policy documents in full.
See the coverages a broker-dealer business may carry — core, prevalent, and situational — plus the gap most often missed, in the Broker-Dealer Coverage Checklist.
Complete the Broker-Dealer Supplemental online in a few guided steps, download the fillable PDF, or browse all applications.
Frequently Asked Questions
What insurance does a broker-dealer need?
Securities Broker-Dealer Professional Liability (E&O), Fidelity Bond (SEC/FINRA Blanket Bond), and Management Liability / D&O form the core of most broker-dealer programs. Many also need Cyber & Privacy Liability, Employment Practices Liability, and Commercial GL/BOP & Umbrella. Your defining exposure is securities professional liability and supervision.
What insurance gaps are most often overlooked for a broker-dealer?
Watch for e&O that doesn't match your actual business lines and products, and for fidelity bond below the FINRA-required minimum for your size. The gap that hurts most is a fidelity bond sized once and never revisited. Under FINRA Rule 4360, a firm with a required net capital under $250,000 needs coverage of at least the greater of 120% of that net capital requirement or $100,000, and larger firms follow a tiered table running from $600,000 up to $5,000,000.
What regulations affect insurance for a broker-dealer?
Broker-dealers register with the SEC and, in nearly all cases, are members of FINRA and covered by SIPC for customer protection. You must maintain a FINRA-compliant fidelity bond sized to your firm under Rule 4360, with any deductible capped at 25% of the coverage purchased and a deduction from net worth for net capital purposes above 10%.
What do underwriters look at when insuring a broker-dealer?
Underwriters weigh your business lines and products, number of registered representatives, retail versus institutional mix, supervisory system, disciplinary and arbitration history, and controls.
What are common insurance claims for a broker-dealer?
Claims we see: A customer files a FINRA arbitration over an unsuitable recommendation, and securities professional liability pays the defense only if arbitration awards are covered and the policy is not limited by an investment-performance exclusion. A registered rep engages in selling away, and the firm's liability is covered only if the policy does not exclude activities outside the scope of the rep's registered business. A FINRA exam becomes an enforcement action, and the defense is covered only if regulatory proceedings are included, while fines and restitution are usually excluded from coverage.
What if another agency has already declined or non-renewed my coverage?
Difficult, specialty, and previously declined placements are a core part of our work. We access excess & surplus (E&S) and specialty markets that many generalist agencies cannot, and we explain the trade-offs clearly so you can decide with confidence.
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