The Kentucky Department of Financial Institutions requires all licensed investment advisors of Kentucky hold a bond. The Kentucky Investment Advisor Bond ensures that the investment advisor handles his or her client’s funds and securities legally and ethically, complying with the Kentucky Securities Act. The bond protects the public and the government from any harm caused by the investment advisor in case of noncompliance with the Act.
If the investment advisor violates the Kentucky Securities Act, someone harmed by the violation may file a claim against the bond. If the state approves the claim, the surety company pays it on behalf of the investment advisor. The investment advisor, as principal, must then repay the surety company for the paid claim.
The bond amount is the maximum amount of coverage that can be paid out to the claimant. The state of Kentucky sets the bond amount, not the surety company. The Kentucky Department of Financial Institutions determines a specific bond amount based on the type and level of authority the advisor has over their clients’ funds.
The bond premium, or cost, generally runs 1-3% bond amount with good credit. With challenged credit, the bond could cost anywhere from 1-10% of the bond amount. The premium covers the cost of bond issuance and keeping the bond active. The state may issue additional costs to file the bond. The State of Kentucky charges a 1.8% state surcharge.
If paid annually, the bond remains in force until cancelled. If the principle cancels the bond, they must notify the state 30 days before the cancellation date.