The First-Ever Fintech to Earn RIAs a Break on Insurance Premiums

Some insurance carriers plan to offer wealth managers policies with preferred rates if they use a specific retirement income planning software, the first price break of its kind, according to one insurance broker.

RIAs and other wealth management firms that use IncomeConductor, a retirement income planning software by the fintech company WealthConductor, could save as much as 20% on the premiums they pay for errors and omissions (E&O) insurance and cyber liability insurance. The policies protect wealth managers from inadequate or negligent work, data breaches, and the legal costs associated with them.

Insurance companies offer discounts, premium credits, or preferred rates to policyholders for all kinds of reasons. For example, carriers often charge customers less when they purchase more than one policy, a practice commonly referred to as bundling. They might also, based on many factors, be considered less risky to insure.

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Wealth management firms are not required by law to have errors and omissions or cyber liability policies. But some partners, including most custodians, require them to have at least E&O coverage before they will do business with them. 

Historically, some carriers have offered preferred rates on policies to advisory firms if, say, they outsource their compliance to a consultant or use compliance software. Getting a preferred rate for using a software service like IncomeConductor is a new phenomenon.

“Really what that means to an insurance carrier is that the advisors using this platform are going to be a better risk to the carrier looking to insure these RIAs,” Nicholas Weiner, a program executive at insurance brokerage Varney Agency, told RIA Intel. Weiner is unaware of any similar price breaks given to firms.

Unlike other software services for advisors, IncomeConductor was built from the beginning with compliance in mind, Sheryl O'Connor, CEO and co-founder of WealthConductor, said. “We don't see compliance being a top concern of a lot of technology applications.”

A lot of different software logs interactions with clients and other advisor activity, but O'Connor says IncomeConductor’s layers of approval provide a new level of transparency. This is critically important for advisors and clients alike when making decisions about retirement income, according to O'Connor.

“What those [insurance] companies are saying to us, and the advisors, is our technology is going to significantly reduce your risk of litigation and make you a better customer with higher underwriting points than the RIA that doesn’t use it,” she said.

“That’s pretty incredible and we’re very excited about this...everyone has just been blown away.”

Out of the dozens of insurance carriers that Varney works with, only some plan to offer or are considering preferred rates for IncomeConductor users. Weiner expects the number of carriers will grow and the preferred rate will evolve over time, as insurers collect more information about IncomeConductor users and their claims. 

Specific rates, with the software in mind, have not been determined by each carrier. But Weiner, who keeps a close eye on fintech for advisors and approached the carriers about preferred rates when he learned about IncomeConductor, thinks policyholders could ultimately end up saving as much as 10% or 20%.

That could translate into significant savings at some RIAs and broker-dealers. A typical RIA with $1 million in revenue, and an E&O policy with $1 million limits and a $5,000 deductible, pays roughly between $6,500 to $7,500 per year. If they use alternative investment in client portfolios, the range of the annual premiums could increase well past $10,000.

Cyber liability policies with limits of $1 million and a $5,000 deductible, get a wealth manager various cyber-related coverages, including incident response, breach notifications, forensics investigation, funds transfer fraud, and more). Those annual premiums range from $950 to $1,250, according to Weiner. Out of about 500 wealth management firms Varney counts as clients, he estimated that 75% have cyber liability policies. That number was as low as 10% but has risen over recent years.

The typical RIA stands to save hundreds of dollars or more each year. Others could be saving much more on a dollar basis. The primary underwriting factors for wealth managers are their total assets under management, gross annual revenue, areas of practice and the total number of advisors at the firm. Those can each widely vary from company to company and so too can the cost of insurance, Weiner said.

Weiner leads a group of six brokers at Varney. The Portland, Maine-based brokerage founded in 1980 now has 85 employees and clients in all 50 states.

O’Connor co-founded WealthConductor in 2017 with Phil Lubinski and Tom O’Connor and then built IncomeConductor to create retirement income distribution strategies. The software has about 200 subscribers and charges a flat annual fee. She expects it will continue to grow because of its affordability, the benefits to advisors and clients, and now the affirmation by insurance carriers.

“This is what retirees want. There are a lot of baby boomers out there with a lot of assets looking for this type of thing,” she said.

Michael Thrasher (@Mike_Thrasher) is a reporter at RIA Intel based in New York City.

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