What is an investment advisor bond?
An investment advisor bond protects customers (investors) by guaranteeing financial compensation if an advisor violates a law or behaves unethically. Many states require these bonds as part of the investment advisor licensing process. This type of license and permit bond also goes by other names: registered investment advisor (RIA) bond, financial advisor bond, and broker-dealer bond.
Are you an investment advisor?
In a nutshell, investment advisors give their clients investment advice or conduct securities analyses in exchange for compensation. Those registered with the U.S. Securities and Exchange Commission are called Registered Investment Advisors (RIAs).
Get Your Investment Advisor Bond:
- Many states require this bond as part of the investment advisor licensing process.
- The bond protects customers (investors) by guaranteeing financial compensation if an advisor violates a law or behaves unethically.
- Depending on the state, the required bond amount may range from $10,000 to $50,000.
- If you operate your business in multiple states, you may need various surety bonds.
Who needs an investment advisor bond?
If you wish to obtain an investment advisor license and your state requires it, you will need this bond.
How do investment advisor bonds work?
Investment advisor bonds are legally binding agreements between three parties:
- Obligee: The state requiring the bond
- Principal: The investment advisor who must buy the bond and, ultimately, pay for any claims that arise
- Surety: The company that issues and guarantees the bond
If an advisor violates state laws or industry regulations and costs a client money, a client may file a claim against the bond. For example, if an advisor misuses a client’s funds, that client may seek justice.
The surety will investigate to determine if the claim is valid. If it is, they may cover the cost to settle the claim if the advisor can’t or is unwilling. The advisor must later repay the surety in full (including any interest and fees that apply).
How much does an investment advisor bond cost?
The cost will depend on the bond amount your state requires and the rate at which you qualify. Your rate will depend on your credit score and financials. Your annual premium could be as low as 1% if you have excellent credit. If you have poor credit, you may pay more – possibly up to 10-15% of the bond amount.
Depending on the state, the required bond amount (penal sum) may range from $10,000 to $50,000. So if your penal sum is $20,000 and you pay 1.5% as your premium, your bond will cost $300.
Your surety may require you to renew your bond annually, which means you’ll pay an annual premium. Your bond must remain active for as long as you want to operate as an investment advisor. Your surety will reevaluate your credentials before renewing, which may affect your premium. If your credit score increases, the cost may decrease.
If you operate your business in multiple states, you may need numerous surety bonds. Check each state’s distinct requirements to see if bonding is part of the licensing process.
Get an Investment Advisor Bond in Your State
We can help you find the right surety bond for your business. ZipBonds offers the fastest and most secure option for getting bonded. Our all-digital platform is intuitive and straightforward. Apply online or call us at 888-435-4191 to speak with an agent directly.
Founders Ryan Swalve and Zach Mefferd formed the vision for ZipBonds.com when they realized how overly complicated it was to help clients place surety. The frustration of being unable to incorporate the technology they’d used in other insurance-focused projects left them thinking “there has to be a better way.”
Fast forward a couple of years, and that better way is the impetus of everything we do at ZipBonds. We constantly look for innovative ways to improve the bonding process for our clients and agents. Our team comprises individuals who understand all angles of surety – for companies, agencies, and individuals. Incorporating everyone’s point of view to improve the process while simultaneously integrating cutting-edge technology is what sets our business apart.