South Carolina Investment Advisor Bond: A Comprehensive Guide

September 13, 2022

South Carolina Investment Advisor Bond

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

At a Glance:

  • Average Cost: Between 1% to 5% of the bond amount per year based on the applicant’s credit history
  • Bond Amount:
    • $50,000 for investment advisors with custody of a client’s funds
    • $35,000 for investment advisors with discretionary authority over, but not custody of, a client’s funds
  • Who Needs it: All South Carolina investment advisors that do not meet the net worth requirements and have custody of or discretionary authority over a client’s funds
  • Purpose: To ensure consumers will receive compensation for financial harm if the advisor engages in any acts of fraud
  • Who Regulates Investment Advisors in South Carolina: The South Carolina Attorney General

Background

South Carolina Statute 35-1-403 requires all investment advisors operating in the state to register with the Attorney General. The South Carolina legislature enacted the registration requirement to ensure that investment advisors engage in ethical business practices. To provide financial security for the enforcement of the registration law, investment advisors that have a net worth of less than $50,000 and custody of a client’s funds must purchase and maintain a $50,000 surety bond to be eligible for registration. Additionally, advisers that have a net worth of less than $35,000 and have discretionary authority over, but not custody of, a client’s funds must purchase and maintain a $35,000 surety bond to be eligible for registration.

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

South Carolina requires investment advisors to purchase a surety bond as part of the application process to register with the Attorney General. The bond ensures that consumers will receive compensation for financial harm if the advisor fails to abide by the regulations outlined in South Carolina Statute 35-1-509. Specifically, the bond protects consumers if the advisor engages in any acts of fraud or omission. In short, the bond is a type of insurance that protects the consumers if the investment advisor violates the terms of their registration.

South Carolina Investment Advisor Bond Form

South Carolina Investment Advisor Bond Form

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

BondExchange makes obtaining a South Carolina Investment Advisor bond easy. Simply login 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 (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 South Carolina Investment Advisor Bond?

Surety companies will run a credit check on the investment advisor to determine eligibility and pricing for the South Carolina Investment Advisor bond. Advisors with excellent credit and work experience can expect to receive the best rates. Advisors 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 South Carolina Investment Advisor Bond Cost?

The South Carolina Investment Advisor bond can cost anywhere between 1% to 5% of the bond amount 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 cost of both the $35,000 and $50,000 bond requirements.

$35,000 Investment Advisor Bond Cost

Credit Score Bond Cost (1 year)
800+ $350
625 – 799 $525
575 – 624 $1,313
450 – 574 $1,750

$50,000 Investment Advisor Bond Cost

Credit Score Bond Cost (1 year)
800+ $500
625 – 799 $750
575 – 624 $1,875
450 – 574 $2,500

*The credit score ranges do not include other factors that may result in a change to the annual premium offered to your customers, including but not limited to, years of experience and underlying credit factors contained within the business owner’s credit report.

Who is Required to Purchase the Bond?

South Carolina requires investment advisors that do not meet the financial responsibility requirements and have custody of or discretionary authority over a client’s funds to purchase a surety bond as a prerequisite to registering with the Attorney General, as outlined below:

  • $50,000 bond required for investment advisors with custody of a client’s funds whose net worth is less than $50,000
  • $35,000 bond required for investment advisors with discretionary authority over, but not custody of, a client’s funds whose net worth is less than $35,000

To paraphrase South Carolina Statute 35-1-102, an investment advisor is a person that advises others on investing in, purchasing, or selling securities or issues analysis and reports related to securities.

Exemptions to this definition include:

  • Investment advisor representatives
  • Lawyers, accountants, engineers, or teachers when performing their regular duties
  • Broker-dealers whose advice is incidental to their regular course of business and are not compensated any extra as a result of this advice
  • Media outlets
  • Banks and savings institutions

How do Investment Advisors Apply for Registration in South Carolina?

Investment advisors in South Carolina must navigate several steps to obtain a registration. Below are the general guidelines, but applicants should refer to the Attorney General’s application instructions page for details on the process.

Step 1 – File Form ADV

Investment advisors must file form ADV with the Investment Advisor Registration Depository (IARD). Advisors must pay a $210 fee when filing the form.

Step 2 – Submit the Required Documents

After filing for ADV, investment advisors should submit the following documents to [email protected]:

    • Copies of all advisory contract forms to be used with South Carolina residents
    • Unaudited balance sheet and income statement for the advisor’s firm that has been completed within 45 days of submission and is accompanied by the verification form
    • List of all investment advisor representatives doing business in South Carolina as well as their CRD numbers

Step 3 – Purchase a Surety Bond

Investment advisors that do not meet the net worth requirements and have custody of or discretionary authority over a client’s funds must purchase a surety bond in the following amount:

    • $50,000 bond required for investment advisors with custody of a client’s funds whose net worth is less than $50,000
    • $35,000 bond required for investment advisors with discretionary authority over, but not custody of, a client’s funds whose net worth is less than $35,000

Do South Carolina Investment Advisors Need to Renew Their Registrations?

Investment advisors must renew their registrations online through the IARD by December 31 of each year.

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

South Carolina does not require investment advisors to purchase any form of liability insurance as a prerequisite to registering with the Attorney General. Advisors that have custody of or discretionary authority over a client’s funds and do not meet the net worth requirements must purchase and maintain a surety bond.

How do South Carolina Investment Advisors File Their Bonds?

Investment advisors should submit their completed bond forms, including the power of attorney, to [email protected].

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

  • Legal name and address of the entity/individual(s) buying the bond
  • Date the advisor submitted their registration application
  • Surety company’s name, address, and state of incorporation
  • Date of the bond is signed

What Can South Carolina Investment Advisors do to Avoid Claims Made Against Their Bonds?

To avoid claims against their bonds, investment advisors in South Carolina must ensure that they:

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

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

Most reputable investment advisors will purchase liability insurance. 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 South Carolina Investment Advisor Customers?

South Carolina conveniently provides a public database of active investment advisors in the state. Contact BondExchange for additional marketing resources. Agents can also leverage our print-mail relationships for discounted mailing services.

2022-09-13T14:15:56-04:00