Sharks swirling: E&O-proof your business now

By Steven McCarty

It's no secret that the last few years have been a financial blood bath. Millions of investors lost trillions in net-worth. People who work in real estate or investment banking have seen their livelihoods sink, with little prospect for recovery. And hundreds of thousands more Americans have lost their jobs and with them, their ability to stay afloat financially.

Well, you know what happens when financial catastrophe and water mix. You get a lot of blood in the water. And blood, along with survivors thrashing on the surface, attracts those who would benefit from misfortune -- sharks.

In today's environment, revenue-hungry attorneys or clients who are determined to recoup their investment losses can tear into and gut your business, chew up your net worth, and spit out your professional future.

So what to do? In times like these, your best defense is to triple-check your moral compass. If you continue to do business with a strong commitment to ethics and integrity, you will greatly minimize the odds of a shark attack.

However, doing business ethically is just the first step. The second is to purchase a high-quality errors and omissions (E&O) policy that is properly designed for your type of business. Being insured won't necessarily prevent an attack. But it will minimize the aftermath of one, allowing you to swim to shore and get on with your life.

However, even if you're ethically sound and protected with a good E&O policy, you're still human. That means you may someday make a mistake that sheds client blood, potentially triggering a feeding frenzy.

The best defense here is to E&O-proof your business practices. Here are just a couple E&O prevention strategies:

E&O prevention strategy No. 1: Make sure your solicitation materials play it totally straight. You never want to misrepresent who you are, what you do, or what you sell.

E&O prevention strategy No. 2: Do a rigorous fact-finder and document the client needs you uncover. Then link your recommendations to the client's documented needs.

E&O prevention strategy No. 3: Educate your clients about what they bought. Make sure they understand what it covers and doesn't cover, as well as all moving parts, fees and expenses, and any underlying risks and guarantees.

E&O prevention strategy No. 4: Always stay in your area of expertise. Swimming in water that's over your head is a recipe for flailing. And you know what flailing attracts.

E&O prevention strategy No. 5: Put everything in writing. Make sure your client file documents every key decision. Also make sure to document when clients decline important coverage, such as long term care insurance. This will protect you from a beneficiary shark.

These five techniques are clearly the surface of a very deep ocean. But here's the key point: train yourself to think defensively at all times, while remaining upbeat about the great work you do.

Finally, to prevent E&O claims, don't get out of the water. Instead, swim in the right direction (ethics), with the right protective gear (E&O insurance), and with the right strokes (best practices).

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