Washington is considering new regulations mandating insurance for state-registered investment advisors, which attorneys for investors hope will reduce the frequency of unpaid arbitration awards.
Currently, Oregon and Oklahoma are the only two other states requiring RIAs to carry at least $1 million in “errors and omissions” insurance. However, earlier this year, Washington’s Department of Financial Institutions proposed amendments to its IA rules mandating coverage.
Additionally, the amendments would adopt the SEC’s Marketing Rule and a continuing education requirement for state-registered advisors, as well as update the definition of “qualified client” to mirror federal definitions. The public comment period closed on August 25, with a public hearing held the following day.
In a letter to the DFI, Joseph Wojcieschowski, an attorney with the Chicago-based Stoltman Law Offices and incoming president of the Public Investors Advocate Bar Association, supported the rule changes, claiming there was no evidence that requiring advisors to carry E&O insurance impacts consumers’ access to investment advice.
According to Wojcieschowski, the rule could help reduce unpaid awards, which he argued “continue to plague the financial services industry and harm investors in every state.”
PIABA has long tracked rates of unpaid awards in the space, arguing that investors too often don’t see the money from favorable arbitration decisions (often because companies are defunct by the time those decisions are issued).
In an interview with Wealth Management, Wojcieschowski explained PIABA’s position, arguing that it seemed like “good business sense” for advisors to maintain some level of liability insurance and that clients would regularly expect it.
“If I were entrusting my money to a professional to invest it at his discretion, as a fiduciary RIA does, then I would certainly hope that person has insurance to cover losses in the event of his negligence,” he said. “At a minimum.”
According to Wojcieschowski, PIABA is trying to find more states to sign on to E&O rules, particularly seeking those with larger populations “that would really move the needle.” But he said the best solution would be at the federal level, with a uniform standard through legislation or Securities and Exchange Commission rulemaking (though he acknowledged that such rulemaking under the current regulatory regime was unlikely).
“I can tell you this is a topic of conversation that we have as an organization almost every time we’re in Washington, talking to both people on the Hill and talking to people at FINRA, talking to people at the SEC on the RIA side and on the broker/dealer side,” he said.
E&O insurance has long been mulled as a tool to combat unpaid arbitration awards, including by the North American Securities Administrators Association.
In 2021, the group of state securities regulators released model rules that mirror some of the potential changes in Washington state, including labeling non-payment as an antithetical business practice.
However, at the time, NASAA questioned whether E&O insurance could adequately protect clients, as it may be too expensive for smaller firms, and often excluded high-risk alternative products and instances of fraud from coverage (however, a 2019 survey by the association found that about 77% of b/d respondents had such insurance).
Though state and federal mandates remain scarce, some of the nation’s largest custodians (including Schwab and Fidelity) have instilled rules requiring RIAs using their custodial services to carry some insurance (including E&O coverage).
According to a 2025 article from the University of Michigan Business and Entrepreneurial Law Review, Schwab RIAs could have moved to a different platform after the custodian’s insurance mandate. Still, there was no indication the rule affected Schwab’s market share.
“These insurance requirements not only benefit customers but may also offer firms like Schwab and Fidelity a variety of advantages,” the paper read. “In instances where a claimant names them as a defendant alongside an RIA firm using its platform, they may now be readily assured that the RIA firm will have coverage and counsel—potentially mitigating their costs. Custodian insurance requirements may also provide a filtering mechanism for uninsurable firms.”
However, the authors acknowledged that despite Schwab’s and Fidelity’s moves, private insurance requirements “have not yet proliferated and changed broader industry practices,” noting that the majority of custodial platforms do not have similar mandates.
If the proposed rule went into effect as is, advisors in Washington state would have until January 1, 2027, to attain E&O insurance that would comply.
According to the DFI, the department is reviewing public comments and anticipates making a decision on whether to adopt final rules within the next two months.
