Alabama Investment Adviser Bond: A Comprehensive Guide

March 4, 2022

Alabama Investment Adviser Bond

This guide provides information for insurance agents to help their customers obtain an Alabama Investment Adviser Bond

At a Glance:

  • Average Cost: Between $500 to $3750 per year based on the applicant’s credit
  • Bond Amount: $50,000
  • Who Needs it: Alabama investment advisers that meet any of the following criteria:
    • Maintains custody of client funds or securities
    • Has discretionary authority over customer accounts
    • Does not maintain a minimum net capitol of $10,000
  • Purpose: To ensure the public will receive compensation for any damages should the investment adviser fail to comply with registration law
  • Who Regulates Investment Adviser in Alabama: The Alabama Securities Commission

Background

Alabama statute 8-6-3 require all investment advisers operating in the state to register with the Securities Commission. The Alabama legislature enacted the registration laws and regulations to ensure that investment advisers engage in ethical business practices. To provide financial security for the enforcement of the registration law, certain investment advisers must purchase and maintain a $50,000 surety bond to be eligible for registration.

What is the Purpose of the Alabama Investment Adviser Surety Bond?

Alabama requires certain investment advisers to purchase a surety bond as a prerequisite to obtaining a business registration. The bond ensures that the public will receive compensation for financial harm if the investment adviser fails to comply with the regulations set forth in Alabama statute 8-6-3. Specifically, the bond protects the public in the event the investment adviser engages in any acts of fraud or breaches any contracts made with consumers. In short, the bond is a type of insurance that protects the public if the investment adviser breaks registration laws.

Alabama Investment Adviser Bond Form

Alabama Investment Adviser Bond Form

How Can an Insurance Agent Obtain an Alabama Investment Adviser Surety Bond?

BondExchange makes obtaining an Alabama Investment Adviser bond easy. Simply log in to your account and use our keyword search to find the “investment” bond in our database. Don’t have a login? Enroll now and let us help you satisfy your customers’ needs. Our friendly underwriting staff is available by phone at (800) 438-1162, email, or chat from 7:30 AM to 7:00 PM EST to assist you.

At BondExchange, our 40 years of experience, leading technology, and access to markets ensures that we have the knowledge and resources to provide your clients with fast and friendly service whether obtaining quotes or issuing bonds.

Is a Credit Check Required for the Alabama Investment Adviser Bond?

Surety companies will run a credit check on the investment adviser to determine eligibility and pricing for the Alabama Investment Adviser bond. Advisers with excellent credit and work experience can expect to receive the best rates. Advisers with poor credit may be declined by some surety companies or pay higher rates. The credit check is a “soft hit”, meaning that the credit check will not affect the adviser’s credit.

How Much Does the Alabama Investment Adviser Bond Cost?

The Alabama investment adviser bond can cost anywhere between $500 to $3,750 per year. Insurance companies determine the rate based on several factors including your customer’s credit score and experience. The chart below offers a quick reference for the bond cost on a $50,000 bond requirement.

$50,000 Investment Adviser Bond Cost

Credit Score Bond Cost (1 year)
680+ $500
625 – 679 $750
575 – 624 $1,875
550 – 574 $2,500
500 – 549 $3,750

Who is Required to Purchase the Bond?

Alabama requires investment advisers that meet one or more of the following conditions to purchase a $50,000 surety bond before obtaining a registration.

    • Maintains custody of client funds or securities
    • Has discretionary authority over customer accounts
    • Does not maintain a minimum net capitol of $10,000

To paraphrase Alabama statute 8-6-2(18), an investment adviser is an individual or business entity who, for compensation, engages in the business of advising others of investing in, purchasing, or selling securities in the state of Alabama.

Exemptions to this definition include:

  • Investment advisor represenatives
  • Depository institutions
  • Laywers, accountants, teachers, and engineers carrying out their regular duties
  • Broker-dealers and their agents providing incidental investments advisory services at no extra cost
  • Media entites and their employees not giving investment advice directed that is directed at specific individuals
  • Insurance companies and their employees and agents

How do Investment Advisers Apply for Registration in Alabama?

Investment advisers in Alabama must navigate several steps to secure their registration. Below are the general guidelines, but applicants should refer to the registration guidelines for details on the process.

Registration Term –  All Alabama Investment Adviser Registrations expire on December 31 of each year and must be renewed before the expiration date

Step 1 – Purchase a Surety Bond

Investment advisers that meet one or more of the following conditions must purchase and maintain a $50,000 surety bond.

    • Maintains custody of client funds or securities
    • Has discretionary authority over customer accounts
    • Does not maintain a minimum net capitol of $10,000

Step 2 – File Form ADV

Investment advisers must file Form ADV, which serves as as both a federal and state registration form, through the IARD. Advisors must pay a $250 filing fee when submitting form ADV.

Step 3 – Mail the Required Items to the Alabama Securities Commission

Applications  must mail additional registration documents and fees to the Securities Commission, whose address is:

Alabama Securities Commission
P.O. Box 304700
Montgomery, AL 36130-4700

The following following items must be submitted:

    • Client Agreement Forms
    • Balance sheet prepared within 90 days of submission
      • An oath prepared by a company officer stating the information is correct must be attached to the balance sheet
    • A statement regarding whether the firm maintains custody and/or discretionary authority
    • Copy of applicant’s brochures (if applicable)
    • An affidavit stating the number and type of Alabama clients.
    • Submission of forms U-4 through the IARD System for all investment adviser representatives doing business in Alabama.
    • List of all representatives who will be conducting business in Alabama.

If the applicant is an out-of-state corporation the following should be submitted:

    • An affidavit concerning whether the applicant has branch offices or representatives residing in Alabama.
    • A certificate to do business as a foreign corporation if the applicant has branch offices or representatives residing in this state. This certificate is available here.

How Do Alabama Investment Advisers Renew Their Registrations?

Prior to the expiration date investment advisors will receive a renewal notice containing instructions on how to renew their registrations. All Alabama Investment Adviser Registrations expire on December 31 of each year and must be renewed before the expiration date. Advisers whose registrations expire must reapply through the IARD system.

What are the Insurance Requirements for Investment Advisers in Alabama?

Alabama does not require investment advisers to obtain any form of liability insurance as a prerequisite to obtaining a business registration. Investment advisers that meet one or more of the following conditions must purchase and maintain a $50,000 surety bond.

    • Maintains custody of client funds or securities
    • Has discretionary authority over customer accounts
    • Does not maintain a minimum net capitol of $10,000

How Do Alabama Investment Advisers File Their Bond?

Investment advisers should mail their completed bond form, including the power of attorney, to the following address.

Alabama Securities Commission
P.O. Box 304700
Montgomery, AL 36130-4700

The bond requires signatures from both the surety company that issues the bond and from the investment adviser. The surety company should include the following information on the bond form:

  • Legal name and address of the entity/individual(s) buying the bond
  • Surety company’s name and address
  • Name and address of the obligee
  • Bond amount
  • Statute requiring the bond
  • The bond’s term
  • Date the bond is signed

What Can Alabama’s Investment Advisers Do to Avoid Claims Against Their Bonds?

To avoid claims on their bonds, investment advisers in Alabama must follow all registration regulations in the state, including some of the most important issues below that tend to cause claims:

  • Do not engage in any acts of fraud
  • Do not breach any contracts made with consumers

What Other Insurance Products Can Agents Offer Investment Advisers in Alabama?

Alabama does not require investment advisers to purchase any form of liability insurance as a prerequisite to obtaining a business registration. However, most reputable businesses will purchase this insurance anyway. Bonds are our only business at BondExchange, so we do not issue liability insurance, but our agents often utilize brokers for this specific line of business. A list of brokers in this space can be found here.

How Can Insurance Agents Prospect for Alabama Investment Adviser Customers?

The IARD conveniently provides a public database to search for active investment advisers in the Alabama. Contact BondExchange for additional marketing resources. Agents can also leverage our print-mail relationships for discounted mailing services.

2022-03-23T17:47:30-04:00