Anyone who is planning to charge consumers a fee for providing financial advice must acquire an investment advisor surety bond, also called a financial advisor bond. The investment advisor surety bond is required to do this kind of work in most states. Usually, proof of the investment advisor surety bond must be submitted to the Department of Commerce and Consumer Affairs or the Department of Finance in the state in question.
The investment advisor surety bond guarantees that anyone providing assistance with financial planning or investment and financial advice will comply with state regulations and work in an ethical, honest, and reliable way. It is also a form of financial protection for the general public.
The investment advisor surety bond is an agreement between three parties:
- the principal, the investment advisor;
- the obligee, the state; and
- the surety, the company who is providing the bond, backing it financially, and vouching for the credibility of the advisor
If a financial advisor violates state or federal regulations or provides bad investment advice because they acted dishonestly (just providing bad advice alone isn’t enough), obligees can make a claim against the investment advisor bond. At that point, the surety company investigates the case. If the claim is valid, the surety compensates the claimant for their losses. Advisors have to pay back whatever monies the surety has to pay out, however.
The Cost of Investment Advisor Bonds
How much financial advisor bonds cost depends on the particular amounts required state by state. The amount of the bond is the same as the full amount of the coverage the surety may potentially extend for a valid claim. However, the actual cost to the obligee is less; usually, investment advisor bonds cost a small percentage of the amount they are worth.
The precise amount of the rate a surety will charge for an investment advisor bond is determined by individual application and review. The surety bond company backing the investment advisor bond will review the applicant’s personal credit score and other signs of financial stability, such as assets, business and personal financial statements, liquidity, the applicant’s work experience—and any prior claims.
Applicants with stronger credit scores and other financial indicators typically pay lower fees for bonds. Strong applicants might pay 0.75% to 2.5% of the total investment advisor surety bond amount. Of course, which surety bond agency you choose also matters, so opt for experience in the industry and a team of A-rated professionals on staff who can help you get your bond.
Investment Advisor Licensing
In many states, it is required that you become a licensed or registered investment advisor (RIA) to provide financial advice. Advisors operating at the federal level who manage more than $100 million of client assets must register with the Securities and Exchange Commission (SEC). Even if you manage less than that, state licensure is usually required.
Usually, passing the Series 65 Uniform Investment Advisor Law exam is required before becoming an RIA. Other steps may be required where you are, such as paying an application fee, paying a licensing fee, and submitting your investment advisor surety bond. To be sure you’re aware of the exact requirements where you are, check with your local securities agency.
Viking Surety Bond and Investment Advisor Bonds
Get started with our online surety bond application to get the bond application process moving today. We’ll set you up with a bond quote, and get you processed quickly, without a hassle.
Contact us anytime if you have any questions about your investment advisor bond or the bonding application process. Your Viking Bond Service professionals will be happy to assist you.