Broker, Dealer, Investment Advisor Bond - Statewide in Pennsylvania

Brief Summary

This bond covers a shortfall, not a fixed amount. If your Pennsylvania advisory firm or non-SEC broker-dealer sits below the state's net worth or net capital minimum, the Department of Banking and Securities can require or permit a bond equal to the gap, rounded up to the next $5,000, and filed on Form U-SB. Because it is sized to the gap and not to the full minimum, it is often a modest bond that keeps a registration in good standing while the balance sheet catches up.

Under 10 Pa. Code 303.051, a Pennsylvania investment adviser that does not meet its minimum net worth under 10 Pa. Code 303.042 must, if the Department of Banking and Securities requires it, maintain a surety bond equal to the net worth deficiency rounded up to the nearest $5,000. A broker-dealer not registered under the Securities Exchange Act of 1934 may be permitted to cover a net capital deficiency below the $25,000 minimum the same way. The bond is filed on the Uniform Surety Bond Form (Form U-SB).

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How to Apply for a Broker, Dealer, Investment Advisor Bond:

• Calculate your net worth (adviser) or net capital (broker-dealer) against the Pennsylvania minimum that applies to you.
• Work out the deficiency and round it up to the nearest $5,000. That is the bond amount.
• If an adviser falls below its minimum, notify the Department by close of business the next business day and file the financial report within 24 hours.
• Have the surety execute the Uniform Surety Bond Form (Form U-SB) in the deficiency amount.
• File the bond with the Pennsylvania Department of Banking and Securities and keep proof available, since the Department can ask for it.
• Renew the registration before December 31 and keep the bond in force for the registration period.

Detailed Information About the Pennsylvania Broker, Dealer, Investment Advisor Bond:

The amount is the shortfall

There is no single bond amount for Pennsylvania advisers and broker-dealers. 10 Pa. Code 303.051 ties the bond to how far the firm falls below its financial minimum, rounded up to the nearest $5,000. A firm that meets its minimum does not post this bond at all.

Investment adviser minimums

10 Pa. Code 303.042 sets these minimums for advisers with their principal place of business in Pennsylvania:

• Custody of client funds or securities: minimum net worth of $35,000. The rule carves out certain custody situations, such as direct fee deduction and acting as general partner or manager of a pooled vehicle, when its conditions are met.
• Discretionary authority without custody: minimum net worth of $10,000.
• Prepayment of advisory fees more than 6 months in advance and more than $1,200 per client: positive net worth.
• Advisers also registered as broker-dealers: net capital under SEC Rule 15c3-1.

Example: an adviser with custody and a net worth of $22,000 is $13,000 short. Rounded up to the nearest $5,000, the bond is $15,000.

An adviser that falls below its minimum must notify the Department by the close of business on the next business day and then file a financial report within 24 hours. The Department decides whether a bond is required.

Out-of-state advisers

An adviser based in another state is covered by the same rule unless it is registered as an investment adviser in its home state and complies with that state's net worth and bonding requirements.

Broker-dealers

10 Pa. Code 303.041 requires every broker-dealer registered under section 301 of the Pennsylvania Securities Act of 1972 to maintain net capital of $25,000. Broker-dealers registered with the SEC follow Rule 15c3-1 instead. For a broker-dealer that is not registered under the Securities Exchange Act of 1934, the Department may permit a surety bond for the registration period equal to the net capital deficiency, rounded up to the nearest $5,000.

Form, surety and claims

The bond is filed with the Department on the Uniform Surety Bond Form (Form U-SB) or a successor form. It must be issued by a company licensed to issue surety bonds in Pennsylvania and is subject to the claims of all clients regardless of where they live. The Department can ask for evidence that the bond is in force.

Fees and renewal

The Department's registration packets list filing fees of $400 for a state registered investment adviser, $135 for each investment adviser representative, $550 for a broker-dealer and $135 for each agent. Registrations expire December 31 each year unless renewed through CRD or IARD, and the bond must stay in force with the registration.

Eligibility and Requirements for a Pennsylvania Broker, Dealer, Investment Advisor Bond:

• Bond amount equal to the net worth or net capital deficiency, rounded up to the nearest $5,000.
• Uniform Surety Bond Form (Form U-SB) or successor form, filed with the Department of Banking and Securities.
• Surety licensed to issue surety bonds in Pennsylvania.
• Bond open to claims of all clients regardless of state of residence.
• Adviser minimums of $35,000 with custody and $10,000 with discretion, and a $25,000 net capital minimum for broker-dealers not registered with the SEC.
• Underwriting review of the firm's financial statements and the owners' credit, which sets the premium.

Pennsylvania Broker, Dealer, Investment Advisor Bond FAQs:

Official and Additional Resources for the Pennsylvania Broker, Dealer, Investment Advisor Bond: