An investment advisory firm purchased professional liability insurance to offer protection from lawsuits brought by customers claiming they received poor or erroneous advice. Which of the following best describes this risk management technique?
Purchasing professional liability insurance as a way to protect against lawsuits from customers claiming poor or erroneous advice represents a risk transfer strategy. By obtaining insurance, the investment advisory firm transfers the financial risk associated with potential legal actions to the insurance provider. This approach does not eliminate the risk but shifts the burden of financial loss.
Risk management techniques in the financial advisory sector
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