Investment Advisor Bond

Often referred to as a financial advisor bond, an investment advisor bond is a surety bond provided to financial professionals who receive their investment advisor license. Individuals or companies that offer financial advice to consumers in exchange for a fee, and position themselves as qualified to do so, are required to hold specific licenses in each state they work with clients. An investment advisor bond acts as additional security for the clients and customers of investment professionals.

Financial and investment advisor bonds guarantee that licensed professionals will provide guidance and advice to consumers in an honest, ethical, and legal fashion. If licensed advisors fail to comply with state regulations, a claim can be made against an investment advisor bond to cover the financial losses of customers.

If an investment advisor bond is required as part of the licensing process in your state, the amount of the bond is not the amount you pay out of pocket. Investment advisor bond pricing is based on a percentage of the total bond amount, typically ranging from 1 to 5%, although it can be as high as 15%. The rate you pay for your bond depends on your personal credit history as well as your claims history and experience in the industry.

Investment advisors with bad credit pay a higher percentage rate for an investment advisor bond. This is because the surety providing the bond sees bad credit as a risk factor, given that bond claims are paid by the bond provider first and then repaid by the investment advisor. Mismanagement of funds, a lengthy history of bond claims, or minimal experience in the business is often a red flag for bond providers. However, investment advisors with bad credit can be bonded; the cost of the bond is simply higher.

If you work with clients in multiple states, you may need an investment advisor bond in each state you interact with potential or active clients. You can check with the state’s licensing board to determine if an investment advisor bond is needed. If it is, getting an investment advisor bond starts with submitting a request for a quote through a short and easy online form.