North Carolina Investment Advisor Bond: A Comprehensive Guide

April 28, 2022

North Carolina Investment Advisor Bond

This guide provides information for insurance agents to help their customers obtain a North Carolina Investment Advisor bond

At a Glance:

  • Average Cost: Between $350 to $3,750 per year based on the applicant’s credit history
  • Bond Amount: $35,000
  • Who Needs it: All resident investment advisors that have custody of or discretionary authority over their clients’ funds or securities and do not meet the net worth requirements
  • Purpose: To ensure the public will receive compensation for financial harm if the advisor violates registration law
  • Who Regulates Investment Advisors in North Carolina: The North Carolina Secretary of State

Background

North Carolina Statute 78C-16 requires all investment advisors operating in the state to register with the Secretary of State. The North Carolina legislature enacted the registration requirement to ensure that advisors engage in ethical business practices. To provide financial security for the enforcement of the registration law, investment advisors that have their principal place of business in North Carolina (resident) and do not meet the net worth requirements must purchase and maintain a $35,000 surety bond to be eligible for registration.

What is the Purpose of the North Carolina Investment Advisor Bond?

North Carolina requires resident investment advisors that do not meet the net worth requirements to purchase a surety bond as part of the application process to obtain a business registration. The bond ensures that the public will receive compensation for financial harm if the advisor fails to abide by the regulations outlined in 18 NCAC 06A.1705. Specifically, the bond protects the public if the advisor 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 advisor violates registration law.

North Carolina Investment Advisor Bond Form

North Carolina Investment Advisor Bond Form

How Can an Insurance Agent Obtain a North Carolina Investment Advisor Surety Bond?

BondExchange makes obtaining a North Carolina Investment Advisor bond easy. Simply log in to your account and use our keyword search to find the “advisor” 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.

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Is a Credit Check Required for the North Carolina Investment Advisor Bond?

Surety companies will run a credit check on the advisor to determine eligibility and pricing for the North Carolina Investment Advisor bond. Owners with excellent credit and work experience can expect to receive the best rates. Owners 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 owner’s credit.

How Much Does the North Carolina Investment Advisor Bond Cost?

The North Carolina Investment Advisor bond can cost anywhere between $350 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 $20,000 bond requirement.

$35,000 Investment Advisor Bond Cost

Credit Score Bond Cost (1 year)
680+ $350
625 – 679 $525
575 – 624 $1,313
550 – 574 $1,750
500 – 549 $3,750

Who is Required to Purchase the Bond?

North Carolina requires all resident advisors that do not meet the following net worth requirements to purchase a surety bond as a prerequisite to obtaining a business registration:

  • $35,000 for advisors that have custody over client funds or securities
  • $10,000 for advisors that only have discretionary authority over client funds or securities

To paraphrase North Carolina Statute 78C-2, an investment advisor is a person that provides clients with recommendations on which securities to invest in.

Notable exemptions to this definition include:

  • Investment advisor representatives
  • Banks, savings institutions, and trust companies
  • Lawyers, accountants, engineers, and teachers performing their normal duties
  • Dealers and salespersons performing their normal duties
  • Media outlets that are not offering advice tailored to a specific individual
  • Business development companies
  • Estate trustees
  • Licensed real estate agents and brokers
  • Business brokers
  • Persons providing investment advice to their employers

How do Investment Advisors Apply for a Registration in North Carolina?

Investment advisors in North Carolina must navigate several steps to obtain a registration. Below are the general guidelines, but applicants should refer to the Secretary of State’s registration page for details on the process.

Registration Period – All North Carolina Investment Advisor Registrations expire on December 31 of each year and must be renewed before the expiration date

Step 1 – Meet the Exam Requirements

Investment advisors in North Carolina must satisfy one of the following examination requirements before applying for registration:

    • Uniform Investment Adviser Law Examination (Series 65 Exam)
    • General Securities Representative Examination (Series 7 Exam) and the Uniform Combined State Law Examination (Series 66 Exam)

Advisors applying as a business entity must employ at least one managing executive who has passed one of the above examinations.

Persons that hold any one of the following professional designations may apply for an exam waiver:

    • Certified Financial Planner
    • Chartered Financial Consultant
    • Personal Financial Specialist
    • Chartered Financial Analyst
    • Chartered Investment Counselor

Step 2 – Meet the Net Worth Requirements or Purchase a Surety Bond

Investment advisors that are headquartered in North Carolina must satisfy the following net worth (assets – liabilities) requirements:

    • $35,000 for advisors that have custody over client funds or securities
    • $10,000 for advisors that only have discretionary authority over client funds or securities

Resident advisors that do not meet the above net worth requirements must purchase and maintain a $35,000 surety bond.

Step 3 – File Form ADV

Investment advisors are required to file Form ADV (Parts 1&2) online through the Investment Advisor Registration Depository (IARD) system. Instructions on how to use the IARD system can be found here. Advisors must pay a $300 filing fee.

How Do North Carolina Investment Advisors Renew Their Registrations?

Investment advisors in North Carolina must renew their registrations by December 31 of each year and can find instructions on how to do so here.

What are the Insurance Requirements for Investment Advisors in North Carolina?

North Carolina does not require investment advisors to purchase any form of liability insurance as a prerequisite to obtaining a business registration. Resident advisors that do not meet the net worth requirements outlined in Step 2 must purchase and maintain a $35,000 surety bond.

How Do North Carolina Investment Advisors File Their Bonds?

Investment advisors should mail their completed bond forms, including the power of attorney, to the following address:

NC Department of the Secretary of State
Securities Division
Post Office Box 29622
Raleigh, North Carolina 27626-0622

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

  • Legal name of entity/individual(s) buying the bond
  • Surety company’s name and state of incorporation
  • Bond amount
  • Date the bond is signed

What Can North Carolina Investment Advisors Do to Avoid Claims Against Their Bonds?

To avoid claims on their bonds, investment advisors in North Carolina 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 or misrepresentation
  • Do not breach any contracts made with consumers

What Other Insurance Products Can Agents Offer Investment Advisors in North Carolina?

North Carolina does not require investment advisors to purchase any form of liability insurance as a prerequisite to obtaining a business registration. However, some advisors may obtain this insurance anyway. Bonds are our only business at BondExchange, so we do not issue any other types of 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 North Carolina Investment Advisor Customers?

North Carolina provides the public with the means of checking individual advisors’ registrations. To obtain a full list of all investment advisors in North Carolina, we suggest contacting the Secretary of State directly. Contact BondExchange for additional marketing resources. Agents can also leverage our print-mail relationships for discounted mailing services.

2022-06-06T17:55:17-04:00