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Top 5 take-aways from BD Watch conference on the new DOL fiduciary rule

Posted by Gary Sutherland on Wed, Jul 20, 2016 @ 04:13 PM

On July 18, 2016, Gary Sutherland and Paul Smith headed to New York to attend the IA Watch and BD Watch conference on the Department of Labor’s New Fiduciary Rule: How Your Business Must Change.

The time was well spent, except for perhaps, the traffic on the way back.  Here are the top five things we learned about the new fiduciary rule.

1.  Hearing from the legal and compliance experts on the new DOL fiduciary rule you couldn’t help but hear the following themes.

  • Major time commitment
  • Major allocation of resources and money
  • Technology must lead the way to compliance
  • In some cases professionals are still in “denial”
  • The use of independent outside consultants
  • Lots of work for the ERISA attorneys
2.  Compliance strategies considered.
  • Limit product offerings
  • Level compensation
  • Combination of both
3.  What should be in your BICE statement? by Marcia Wagner
  • Scope
  • Arbitration
  • Standard of Care, best interest standard and advisor compensation
  • Warranties
  • Disclosures
4.  IRA rollovers “must” considerations by the advisor
  • Leave it alone
  • Cash it out
  • Bring with you to the new employer
  • Give it to the advisor

5. Additional comments

  • Robo Advisors for small plans and IRAs will be the norm not the exception
  • “Good compliance is good business”
  • Level fees and inactivity surveillance guidance
  • Level fee and the use of BICE light
  • Original signed BICE agreement must be kept for 6 years
  • ERISA claims no “right” to a jury
  • BICE equals best interest contract exemption

Tags: risk management, liability

Fraudulent Transfer Scams Plaguing CPAs & Advisors

Posted by Alison Simons on Fri, Aug 21, 2015 @ 08:56 AM

Be very wary of emails requesting transfers of funds from hacked accounts.

We've recently seen two phishing scams that have resulted in fraudulent client fund transfers. While the amounts are typically not large (under $50,000), in both cases there were multiple transfers. The losses are different but the claims are essentially identical.

Each of our insureds received an email requesting transfer of funds, and in both cases the email requested that monies be wire transferred from their accounts to a Wells Fargo account. These fraudulent emails included significant identifiable personal details and signatures on faked transfer forms. Signatures were verified against signatures from other valid transfers and determined to be authentic -- so they thought.

In one case the bank asked for a phone number to verify the transfer as the transfer form was slightly hard to read (red flag). An email was sent to the hacked account requesting a cell number to verify the transfer. In an email response the sender asked if they could call the bank to verify, and this was allowed as the caller had the correct banking information, social security number and other personal identifying information details to convince the bank to move forward and transfer the funds.

Both of our insureds' clients have been asked to be made whole, and we are in the process of determining the liability associated with each claim.

With one of these claims, the bank clearly has some liability as it did not follow proper protocol and allowed a deviation of standards by accepting a “call in” as opposed to the “bank calling out.”

(Side note: both of these clients are longstanding, very profitable accounts, and our insureds are trying to mitigate damages to maintain the relationship.)

OK, now that you have read the claim summary what’s next? Your office needs to take steps to reduce your liability while protecting and safeguarding your clients’ bank accounts.

Here are several steps that you should incorporate into your due diligence internal controls:

  1. Email requests must be verified by a second means of verification. In many cases a text message to a cell phone can insure some protection. The theory is that hacked email accounts are usually done from a far (Russia, China, West Africa), and the hackers would not be in possession of the cell phone. Additionally, the text message could include a request for an additional identification password that may not be known by hackers (for example, frequently we see questions like name of their dog or name of their high school). Also often emails have been hacked weeks before the owner becomes aware, and the hacker waits to gather information to be used fraudulently. On the other hand if your cell phone is missing for more than four hours you start to panic and take steps to prevent misuse.

  2. Be suspicious and examine emails closely, looking for ‘red flags’ such as misspelled words, forms that appear to be scanned and are slightly illegible, salutations that are not consistent with other email correspondence. In some cases a word seems out of place or used incorrectly. In other cases our insureds received numerous follow-up emails asking for details on when exactly when the transfer was completed which showed a level of desperation.

  3. Include internal protocol procedures stipulating that your employees to have a second person review and sign off. If possible include the key person in the office that has the relationship with the client, as they may have more personal knowledge of the client and sense a fraudulent request.

  4. For larger transfers, elevate the due diligence, requiring absolute second live verification before transfer of funds.

  5. Consider adding language to the engagement letter that states you will make every effort to verify transfers, and in cases where you are unable to verify the validity of the transfer you will refuse until satisfied that it is an authentic request.

 

By incorporating these preventative measures, you could thwart criminal fraud and you are building your defense should the fraud occur.

Tags: accountants, CPA Alert, Information Security, liability

Social Media and Employee Liability - NLRB Report

Posted by Tom Henell on Sat, Jun 23, 2012 @ 07:17 AM

The consensus, to date, is that employee related claims arising from, or related to, Social Media has not reached the activity initially projected.  However, insurance companies still believe the exposure and potential liability is there.

The issue is that Social Media has the potential to blur the line between personal and professional behavior.  It is important for companies of all sizes to maintain a Social Media policy as part of their employee handbook.  And, to keep up with relevant changes to make sure their policy is current with acceptable standards.

The National Labor Relations Board (NLRB) has issued a new report on acceptable social media policy and handbooks language. The report details what they believe is acceptable and unacceptable employee handbook guidelines around the use of social media.

Download NLRB Report; Report of the Acting General Counsel Concerning Social Media Cases

Tags: Social Media, social media policy, liability

Who needs Trustee Liability Insurance?

Posted by Tom Henell on Thu, Dec 01, 2011 @ 10:43 AM

If you act as, or provide services as, a trustee it is important to understand your potential liability and relevant insurance coverage available to you.  Some Professional Liability policies include coverage for services as a trustee.  However, how these services are provided may influence such coverage.  Some questions you should consider?

  1. How are your trustee services invoiced?  By your firm? or, by you individually?  If the latter, you should discuss with your agent.
  2. Are there exclusions in your policy that may impact coverage for your trustee services?  Are you a beneficiary of the trust?
After reviewing your professional liability policy, you may consider purchasing a stand-alone Trustee Professional Liability Policy.  Trustees who are candidates for a stand-alone policy include:
  1. If you are rendering trustee services separate from your firm where the fees inure to your personal benefit.
  2. If you do not have a professional liability policy that includes coverage for your services as a trustee.
  3. If you have a conflict with your professional liability policy that would exclude coverage for your services.
  4. If you are a co-trustee and want to have coverage for liability of your co-trustees.

Trustees are held to a high fiduciary standard and the potential for liability is significant.  

Read about actual Trustee claim examples.

Having the correct coverage for your exposure is important.  Contact NAPLIA if you have any questions.

Tags: accountants, Trustee, liability, professional liability

Naming your client as an additional insured

Posted by Tom Henell on Fri, Jun 17, 2011 @ 10:33 AM

It is common for client contracts to contain insurance provisions. Typically, these provisions will require you to maintain certain types of insurance (professional liability, general liability, workers compensation, etc.), and minimum limits of liability for each. In addition, the contract may go on to outline specific conditions often including that the client be named as an additional named insured on your insurance policies. Unfortunately, contracts will sometimes apply these conditions on a blanket basis without regards for the individual nuances of each insurance product.

Read our article on "Naming your client as an additional insured, and other contractual conditions" to understand industry standards, and items to review in your client contracts.

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Tags: liability, professional liability

5 Things to consider when referring clients to another professional

Posted by Tom Henell on Fri, Apr 08, 2011 @ 12:06 PM

Professional to professional referral is common practice in most industries.  A referral can provide value to the client, the referrer, and the referee.  Your client can benefit through a needed additional service, as well as, saving the time in finding an expert on their own.  Referrals can also strengthen your value by showing your interest in the client’s well being, and your connections in the industry.

handshake

However, referrals can also expand your liabilities in areas that you may not be aware.  Your liability typically does not end once you have made the referral to another professional.  Here are five things to consider when referring your client to another professional.

  1. Always keep the client’s best interest in mind.  This should go without saying, but referrals should not be made on a blanket basis.  Each of your client’s scenarios are unique and referring a client to another professional for unnecessary services may decrease your standing with your client.
  2. Confirm that the other professional maintains Errors & Omissions insurance.  This is important regardless of fee sharing agreements and/or indemnification clauses.  The best position is to request a formal “certificate of insurance”.  You will have a formal record, and as a certificate holder you are entitled to be notified if their insurance is cancelled, or non-renewed.
  3. Disclose the relationship to your client prior to the referral, and obtain a signed disclosure statement.  This is essential if you are receiving fees, commissions, or any monetary value for the referral.  Transparency is key to maintaining your neutrality.
  4. Make sure the referral fees you receive are in-line with industry standards and in relation to the amount of continued involvement on your part.  If your referral fee is higher than industry standards it implies that your role in the continued service is also greater than the industry standard.  When reasonable do not accept referral fees, but rely on good-will to your client, and return referrals as compensation for your efforts.
  5. Provide at least 2 or 3 referrals in each circumstance.   Providing options to your client does not completely eliminate your liability, but it does increase the emphasis on their role in selecting the right match for their circumstances. 

The above list is not all encompassing, but it is a start for you to consider in mitigating your liability.  By implementing these items you will provide a better value, while protecting your firm and industry related partners.

Tags: accountants, cpas, liability, professional liability

Trustee Liability & Exposure

Posted by Tom Henell on Thu, Mar 17, 2011 @ 10:31 AM

We frequently receive questions from individuals who have been asked to, or are currently acting as, a Trustee. The most frequent question is in regards to coverage for these services under their (accountants) professional liability policy.

Although each policy form is different, it is our opinion that most accountants professional liability policies intend to provide coverage for an accountants professional services as a Trustee.

Read more about the potential exposures created by acting as a Trustee and specific Risk Management steps you can implement. 

Tags: Trustee, liability