What Is Golsan Scruggs?

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This is the Transition To RIA Vendor Profile Series where we take a look at the solution providers powering the RIA model. On this episode:

Vendor name:

Golsan Scruggs

Vendor category:

E&O

Episode host:

Brad Wales

Episode guest:

Cam Norris

Vendor contact info:

Website, cnorris@golsanscruggs.com

Full Transcript:

Brad Wales –  Hi, I’m Brad Wales with Transition to RIA, and this is the Transition to RIA Vendor Profile Series where we take a look at the solution providers powering the RIA model. On today’s episode, we’re answering the question, “What is Golsan Scruggs?” To help us answer that question is Cam Norris. Cam, thanks for coming on.

Cam Norris – Brad, thanks for having me. I’m excited to be able to join you.

Brad – Certainly, certainly. We’ll jump into the questions, but I would start by saying I always get wonderful feedback. I send a lot of advisors to Cam to hear about solutions for their E&O needs, which we’re going to talk about in today’s episode. Cam, obviously, you earn that feedback. So I appreciate all you do. I think that will show through in this video as well.

Cam – Thank you so much, Brad. Glad people appreciate it and I just always appreciate the work that you do and for you sending me over great people to have conversations with.

Brad – Certainly, certainly. So if you could, I kind of gave a little teaser there, but at a high level, what is Golson Scruggs?

Cam – Yeah, so not to get confused with Goldman Sachs if you’ve ever gotten a call for us, but we are a boutique property casualty insurance brokerage and really we have a team within the company. It’s our largest department that focuses exclusively on working with RIAs and asset managers.

The main insurance products that we focus on are E&O is the biggest then areas like cyber crime insurance, directors and officers, employment practices, a lot of the things that are specific to an individual advisor’s firm, they’re professional exposures. But we also do general liability and workers’ comp. Generally, our clients are coming to us for our niche focus in E&O, cyber, and those components.

Brad – Yeah, I think that’s key there. I don’t want to say I misspoke, but right at the top I said for E&O, and that is a part of it. That’s arguably the biggest part of it. But as you noted, there’s other coverages that are either required by perhaps custodians like cyber or just their best practices and those sorts of things.

I do hear folks sometimes say to me, they’re in the process of transitioning and they know they’re going to need some sort of E&O coverage, and they say, well, I’ve got a local guy, and he’s an insurance guy but not necessarily in this industry. How would you say what you guys do is different from that guy, that local guy that presumably could help them out to some degree?

Cam – Yeah, that’s a wonderful question. I think it’s important to understand kind of a couple unique things about insurance for an RIA. So most of the insurance that business owners or even consumers in general buy such as general liability, auto insurance, homeowner’s insurance, those policies, I’ll spare you the details, are very commoditized. There’s a quasi-governmental agency that oversees a lot of this market, auto insurance being a good example. So there’s definitely differences between carriers, but largely if you’re buying State Farm or Geico, you get a similar product from each of those carriers.

When it comes to things like E&O insurance or cybercrime coverage, those policies are not regulated by this quasi-governmental agency. So really all of the carriers write their own contract forms. So what I would say is what’s really unique about our focus is that we only work with asset managers. This is the language that we speak, but being a broker, we also know the differences between all the insurance markets.

Like for example, Brad, this may come as a surprise but there’s certain insurance carriers that don’t cover trade errors. That may not be something that a generalist would know. My team and I, we know which carriers may have limitations there, which carriers can get full coverage, which may come as a surprise like errors and omissions. You would think it would cover errors. Most common being a trade error. Well, the devil’s in the details, unfortunately.

Brad – Yeah, interesting. I was going to say it’s in the name, errors and omissions, but I think those are important because, like most insurance things in life, everything works wonderfully if you don’t have it right up until you actually need it, right? You might not ever make that trade error and you might luck out and never have an issue, but if it ever does come up, if it turns out there’s a gap in your coverage, it’s too late at that point. So I think that’s a great explanation.

Cam – To further elaborate a little bit on it, Brad, I think what any business owner wants in RIA is you want to find a broker, in my opinion, that understands your professional exposures. Okay, you’re a fiduciary, understands how an asset manager works, but then can also educate you on what the different insurance solutions look like. As I said, there’s differences.

So I think a big thing that we do to stand out is to educate our clients on what these policies are, on what they’re not, this carrier has these limitations, this carrier has no limitations, and really walking through a discussion and fitting the insurance program to what this individual advisor’s business model looks like. Some advisors may need coverage for something and other ones don’t. So it’s really about crafting it to your specific needs.

Brad – The devil is in the details. So for those that don’t know, it was only as recently as just a couple years ago that most custodians started requiring these coverages; before that they typically didn’t. But just because there’s the required level does not necessarily make it sufficient for your particular practice. So there’s that type of thing, of course.

Cam can help you with understanding “Okay, what’s the baseline I have to have because of my chosen custodian,  what’s the profile of my practice here?”, as he was saying. But there are practices of all different sizes. Is there a particular minimum-size practice that you will work with, what’s kind of the sweet spot, or what do you typically see?

Cam – We’ve largely made the decision that we want to work with advisors of any size, but probably more groups that want to be educated on their insurance and understand that it’s an important part of protecting their business. So we have clients, Brad, that are just getting started out with zero million under management. I think our largest firms have an excess of 100 billion and really everything in between. If I had to say our sweet spot, probably our average client is a group of two to five advisors and manages 200 million to a billion. Most of our clients fall probably between a 100 million to a billion.

Brad – Shortly we’ll get to kind of what that process is and then eventually how they can contact you. But how is something like this typically priced out? So we will get to the timeline soon but the pen doesn’t hit paper until kind of down the stretch.

But when folks are first thinking about should they transition into the RIA space for better or worse, E&O has maybe been provided for them or forced upon them, and now they need to procure their own but don’t necessarily have any idea what to expect on cost. Can you typically help even very early in that process to just give them a general idea of what kind the cost might be and then what ultimately goes into the final price?

Cam – Yeah, we 100% can help a firm that’s thinking about forming an RIA get a very close to a ballpark estimate on what they can budget for their insurance costs, especially on a pro forma need. I don’t know our exact number of clients, Brad, but we have well over 2,000 independent RIAs. So our team, we see 2,000 renewals or more every year, and we work with the entire market. So we know where clients are going to be priced. Unless you’re running a three-time short crypto hedge fund or something else really outside the boundaries, we’re going to be able to give you a good idea.

Largely, what drives pricing are a few different factors. First, what are all the services that our firm is providing? You know, are we doing portfolio investment management? Are we going to be selling insurance, like fixed insurance, alongside of it? Then largely investment strategy, in particular alternative investments. Do you want to allocate to non-traded vehicles?

Maybe that’s a reason you’re thinking about starting your own RIA. You want more optionality, but you know, digging into the business services, the investment makeup, and then really from there, it’s assets under management. All else being equal, a firm with a billion in AUM pays more than one with a hundred million. More clients, more potential for something to happen. That’s how the underwriters kind of factor in pricing.

Brad – How deep does that go in that first conversation? Maybe you could just walk us through that. Someone reaches out, they’re planning on breaking away, they’re exploring breaking away. They maybe want to talk pricing. How deep or what does that first conversation look like and how much detail are you going into? Is it typically more high-level talking about how this works, the kind of coverages, or what does that look like just to set expectations?

Cam – I would say an average conversation, someone that you would introduce me to, for example, is typically a 30-minute call. The first 15 minutes is probably me just digging into some high level points on the company. Hey, what type of clients do you work with? How do you construct portfolios? Not like the nitty gritty detail of which trading software you use, but do you use individual equities? Do you use stocks? Do you provide insurance? How much do you think in assets you may have? Some of those kinds of key, thousand-foot questions. Most clients have a decent idea of high-level what our practice looks like.

Then typically from there the rest of the conversation, the next I would say 5 to 15 minutes, depending on how much detail a potential client wants to go into, is us kind of explaining how the insurance marketplace is structured. Maybe a little bit on what these policies are, what does Cyber cover, what does E&O actually cover. If you’ve come from a wirehouse and they’ve provided it to you, you may never have thought too much about it and to just create some clarity on it, here’s the stuff you can consider.

Then at the end of the call, we’re going to say here’s what you should expect for price. Maybe there’s a couple different limit options. Really where we look to stand out even amongst our competitors that focus in RIAs is we try to just lean on education. Because I’m a broker and other brokers like my competitors, we largely have access to the same insurance products. But there are a few solutions that we don’t have access to and I’ll even help educate clients on what those look like so that they can make the best decision for their business.

Brad – An analogy I heard once, and we’ll see if you agree with this, is it’s kind like I’ve worked in the corporate world for close to 20 years and for health insurance, the company provided it. It was the plan. Now, every couple of years, the plan might change, but it wasn’t like I really had anything to choose from. It was here’s the plan and maybe it’s you and a family member or whatever the case is, but here it is and here’s the cost. So for better or worse, that was my health insurance.

Then when I left to start a business, I got to go out in the marketplace and there’s all different kinds of options and all different kinds of choices that go into that. I guess you could equate the same for a lot of folks that come from that captive environment.

For better or worse, here it is, here’s what you pay for it, here’s what it covers. You can ask questions about it, but it doesn’t really make any difference because you don’t have any choice to change anything. Yet when you go out on your own, there’s a lot of variables that could factor in to coverage levels and pricing and all that. I don’t know if you like that analogy or what your thoughts on are on that.

Cam – I think that’s a great analogy and what’s the right level of coverage? I think something that’s important is that any RIA should work with a specialist. Whether it’s me or one of our competitors across the country, there’s a handful of good groups that exist out there. You want someone that sees claims too so that they can help guide you on cyber insurance. That’s something that clients are maybe really worried about. “Okay, Cam, what do claims look like? Do I need to buy a million of this insurance? Do I need more or less?”

Those are things that we as a broker that focuses on RIAs can really help and guide on. We can explain here’s what your peers look like, here’s what the claims look like in the areas that maybe you didn’t think about that may be a larger risk or maybe a lower risk. Like wire fraud for example, we see much bigger wire fraud claims than we do true cyber breaches, like from the actual costs that the insurance companies end up having to pay out or if you don’t have the right insurance the cost that the RIA ends up having to float themselves.

Brad – Yeah, and that can be a painful process. I think this goes back to, again, a differentiator between going with the local generic insurance person and you being able to lean on 2,000 clients. There are going to be some claims in there that you and the team can learn from and share those same stories and situations with your clients.

So what would you say from a timeline perspective? Someone particularly breaking away that this is all going to be new to them just like we’ve been talking about. They’re working through a lot of variables. That’s a big thing, right? What I help folks with is understand where all those variables are and how you work through them. So the E&O slash slivers slash whatever is part of that. In a perfect world for a measured pace or measured process, what amount of time do you generally want to see from that first conversation to when pen is hitting paper and it’s in force?

Cam – Yeah, I think the first conversation, as I mentioned, right,  it’s very high level. Hey, let’s get to know you as the investment advisor. You can get to know us and our company on how we approach the business. I would say ideally we’re giving you kind of pro forma numbers. Hey, here’s what you can expect for pricing in a rough ballpark.

I think that conversation is anywhere from a year ahead of launch to six weeks ahead of it. I’ll talk about the timeline as we get through it. We can move quicker, obviously, but I think you know having at least a six-week runway sets your broker up for success and it also sets the advisor up for success to get everything implemented ahead of time and not having it feel like a fire drill at the last minute.

Brad – What about for the existing RIA? So most of my audience is in the process of considering transitioning into it, kind of like the timeline there. What about someone that has a policy with whoever, we’ll keep picking on the local guy, but is watching this perhaps and says, hey, maybe I need to explore Cam and his offering.

How does that typically work? So someone’s got a policy and it’s already enforced. Do you say, let’s look at it and we’ll try to time it to when that one expires and then kind of go forward from there? Do you say hey, let’s look at what you have now and maybe you do something sooner? What does that typically look like for an existing RIA that has something in place currently?

Cam – Yeah, for an existing firm that has something in place currently, we take a slightly different approach. Slightly different as the first conversation is still, let’s get to know you. Hey, we’ll take a look at your ADV ahead of time. I’ll take a look at your website. You know, I come in pretty well-prepared. It’s kind of more, hey, Brad, am I looking at this all correctly? Is there anything that’s maybe changed from the last ADV update? Then it’s talking about our approach.

Really, for firms that have existing coverage, we don’t talk about price to start with. What we really offer to them is a complimentary review. We look at here’s your current insurance program. We put together, for lack of a better term, a financial plan. It’s, hey, this is what we understand about your business. Here’s your risk profile. Then we do a contractual review. Hey, is your cyber insurance covering your business appropriately? Does your E&O have all the right endorsements?

Then along with reviewing the current policy, we will benchmark where typically two or three other carriers would also come in at. So typically in the review conversation, we’ll get into, hey, are you paying a fair price? Has this been left on autopilot and the marketplace has changed and you need to be readjusted?

It’s really not about selling something. It’s really, maybe there’s a theme here, about education. It’s really about educating people and we hope through education that we earn clients, a potential client’s trust and as a result, they want to work with us to handle this for them. We find that that review is most valuable removed from the renewal window because it’s not about a sale. It’s really about educating the business, the business owners, the important decision makers.

You know, I’d say we can do it as close as two months ahead of the renewal. Our preference is probably to do it three, four, six months ahead of renewal. It can be even right after you renewed your insurance, but kind of once you’re in that 30-, 60-day window of you need to get a new insurance policy it can feel a lot more like a sales pitch, like I’m trying to sell you something. We want to take a step back, make recommendations, kind of outline the marketplace then put together a plan or here’s how we would approach it if you were our client.

Brad – I think that shines through your focus on the education versus the hard-sell approach. You haven’t really said it, but I can because it doesn’t look like I’m trying to sell anything, but there’s a lot of war stories we could share. You certainly have so many more than me just because you’re in that industry of folks that learn the hard way. They either did not have coverage at all or did not have the coverage they thought they had.

Over my time, I’ve been involved in some tough conversations or heard of scenarios that have come up and it can be very challenging, very heartbreaking, very stressful for folks that are impacted. Not that having coverage makes it necessarily less stressful with some sort of event, but obviously it makes it at least more manageable.

I know you could share some scary stories as kind of a sales tactic, because you’ve been in the game long enough to know them. But for those listening along, you don’t want to be one of those stories and you want to get ahead of it, get that education from Cam and he certainly could be a good resource.

With that in mind, what is the best way for folks that are watching this, listening to this, to get a hold of Golsan Scruggs?

Cam – Yeah, so we have a website. It’s called gsria.com. You can also just Google Golsan Scruggs. I’ve been doing this for 11 years. I know Brad, you said not to say, hey contact me. But I’m not going anywhere either, anytime soon. I still get ID’ed when I buy alcohol, so I think I still got a few more years ahead of me in this space. But all of our eight broker team members are very well qualified.

I would say one other thing. If you’re a breakaway RIA and you’re looking at insurance, when you want to start the actual application process, from a timing standpoint, is when you file your rough draft ADVs. So once your compliance group has your rough draft ADVs over to either the state or the SEC, that is when you want to start the insurance application process.

It typically takes at least a month to get approved. We can get quotes turned around in typically a week and a half. Hopefully we’re presenting all the insurance options two or three weeks, if not more, ahead of the breakaway or the launch. Then this is one thing that you don’t have to worry about because it’s my understanding that it gets a little hectic as you get closer and closer.

So we try to work hard, especially with our firms that are launching. We know it’s stressful to get ahead of it and that you want to know this thing is taken care of. It’s just a matter of what date you want the insurance policy to start. Then you can focus on other components of getting the firm up and running.

Brad – Great thing to add on there. You’re correct, we should have mentioned that in the timeline standpoint. For anyone that’s thinking about making a transition down the stretch, there’s no way to avoid it. You do as much planning ahead of time as possible to make it as manageable as possible, but it is a lot of moving parts all in a short amount of time down the stretch.

One way you can try to help manage that to some degree is doing the education parts of this well in advance so that’s not happening at the same time. Obviously Cam can walk you through what his timeline would be down the stretch through this process.

So, Cam, I appreciate it. We’ll put it in the show notes again, but gsria.com. I will put Cam’s email address in there as well so everyone can reach out directly to him. I always appreciate your knowledge, I appreciate you helping out, and thanks for coming on for an episode.

Cam – Thank you so much, Brad. I appreciate the work that you’re doing for advisors and helping them navigate all the moving pieces with getting firms started up. People like you are really doing a good service to the industry.

Brad – I appreciate that. All right, thanks, Cam.

Cam – Thank you so much.

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