Investment Advisor Surety Bonds
In certain states, Registered Investment Advisors (RIAs) must hold a surety bond. Additionally, if your duties involve offering investment advice to a participant of an ERISA plan, the U.S. Department of Labor requires you to post an ERISA Fidelity Bond. The following information explains what a surety bond is, what it covers and how to purchase one.
Registered Investment Advisor (RIA) Bonds
What is an RIA Bond?
As an investment advisor, you must follow the rules and standards of professional conduct set by the state in which you do business. Most states require you to have an Investment Advisor Surety Bond to ensure you perform your advisor responsibilities ethically and responsibly. While a surety bond is an insurance product, it works more as a line of credit.
A bond is a three-party contract between you, the obligee and the surety.
The principal – As the investment advisor, you are the principal of the bond.
The obligee – The government agency requiring you to submit a surety bond.
The surety – This party issues the bond. They also investigate and settle claims made against the bond.
If your client believes they have been deceived or manipulated by you, they may seek to make a claim against your bond.
What happens if a claim is made?
The surety company conducts an investigation on any claims made against your bond. These claims could be due to you breaching fiduciary duties, providing inaccurate representation, violating federal securities law or any other unethical act against your clients. If a claim proves to be valid, the surety will pay out up to the full amount of your bond. As the principal of the bond, you are the responsible party for paying the surety back the full amount.
How much does the bond cost?
The cost of your bond (also called the premium) depends on a few factors, including the bond amount and your personal credit score. Generally, the bond amount is set by the obligee and can range between $10,000 and $50,000. If you are unsure of the bond amount to enter on your application, please contact the obligee. Please be aware that the premium is not the same as the bond amount. You will only pay a small percentage of the bond amount as premium.
The other important factor that determines the amount of premium you pay is your personal credit standing. Approved applicants with good credit can expect to pay between 1% and 3% of the bond amount.
Can I still get an RIA Bond with bad credit?
A soft pull on your credit is necessary to receive a quote for your Investment Advisor Bond. However, you may qualify for a quote even if your credit is bad. Our partnership with leading surety providers allows us to place applicants with non-standard credit. Upon approval for a quote, expect the bond premium to be in the range of 5% to 15% of the bond amount.
Getting your surety bond quote doesn’t adversely affect your credit score and our no-obligation quotes are always free.
Does my bond cover me in other states?
Unfortunately, your Investment Advisor Bond will not satisfy bond requirements set in states other than the specified state on your bond form. Due to each state having specific licensing requirements and its own rules and regulations, you will need a bond for each state you plan on performing your duties as an investment advisor.
ERISA Fidelity Bond
What is an ERISA Fidelity Bond?
The purpose of the Employee Retirement Income Security Act (ERISA) of 1974 is to protect participants and their beneficiaries of an employee benefit plan. The ERISA Fidelity Bond, a requirement of the U.S. Department of Labor, ensures the funds from 401k plans, pensions and other employee benefits are protected from theft or other fraudulent acts. Investment advisors may need to secure an ERISA Fidelity Bond if they work with their client’s ERISA plans.
You must adhere to this federal law and get an ERISA Bond if you are responsible for any of the following:
- Disburse, move or negotiate plan funds
- Implement or negotiate documents related to the plan
- Physically handle checks, money or other assets of the plan
How much do I select for the bond amount?
Getting quotes for your ERISA Fidelity Bond is quick and easy using our online application. Get started by selecting the bond amount you require.
Not sure what to select for your bond amount? We recommend contacting the U.S. Department of Labor to verify the amount of coverage they require of you. The amount you select needs to equal 10% of the total plan funds you handled last year or $1,000, whichever is more.
However, you will not pay the full bond amount. Depending on your bond amount requirement, your bond could cost as little as $165 for a 3-year term.
What does an ERISA Fidelity Bond cover?
Unlike traditional insurance, a surety bond is a mix of insurance and a line of credit. However, the ERISA Bond does not provide coverage for you. Instead, the bond serves the purpose of protecting the employees of the plan from financial loss.
The 3 parties associated with the bond are:
- The Obligee – The U.S. Department of Labor requires this bond to protect the employees associated with the benefits plan. They have the ability to make a claim against the Surety Bond if they suffer a loss due to fraud or mishandling of the funds by the principal.
- The Principal – You are the principal of this bond. If the surety pays out to the claimants due to a valid claim, the responsibility of repaying the surety back in full rests on you, the principal.
- The Surety – The neutral third party you choose to issue your bond. An investigation takes place when a claim is made against the ERISA Fidelity Bond. If a claim is found to be valid, the surety will pay out up to the full bond amount.
What are “non-qualified” assets?
One of the questions on our ERISA Bond application is “Does the plan include any non-qualified assets?”
Money able to be used for any purpose and funded with post-tax dollars is considered non-qualified assets. Non-qualified investments typically don’t restrict your ability to contribute to them in a given year and don’t require you to withdraw money out of your account when you reach a specific age. Not all non-qualified investments grow on a tax-deferred basis.
Money specifically earmarked to provide income during your retirement years and is funded with pre-tax dollars is considered qualified assets. Qualified investments, such as your employer’s 401k, generally allow you to contribute to your account up to a dollar amount specified by the Internal Revenue Service (IRS) each year. Also, they penalize you for taking withdrawals before you reach the age of 59 and a half and require you to start taking withdrawals prior to turning 70 and a half years of age.
The majority of qualified assets include provisions allowing both you and your employer to contribute to your retirement account. Contributions from both sources grow tax-deferred.
After you purchase your ERISA Fidelity Bond
When you receive your quotes, you’ll have the option to purchase your ERISA Fidelity Bond online. After purchasing your bond, you can instantly download your bond packet. You don’t have to submit your bond to the obligee, the U.S. Department of Labor. However, you will need to keep the bond in your records in case they perform an audit.
Why get my bond with Surety Solutions, A Gallagher Company?
Getting a surety bond is an important step in meeting federal and state requirements. The process of getting your surety bond doesn’t have to be complicated or time-consuming. By completing our quick and easy online application, you’ll have a quote within 48 business hours, upon approval. Have a question about the required surety bond or our online application? Send us a message using the contact form below, or email firstname.lastname@example.org. Our team of surety experts is available for any of your questions about Investment Advisor Bonds or our online application.
Get your Investment Advisor Bond quote.
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