IA net capital or net worth?

FINRA FINRA Series 63
1

there was an answer that said IA’s surety bond requirement can be waived by the state admin by maintaining a higher net capital, I thought IA’s are only required to show net worth???

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Hi @Virgil_Monahan - do you have the question ID or a screenshot? Investment advisers can be subject to surety bond requirements, but maintaining a certain level of net worth exempts most advisers. Net capital is the financial metric used by broker-dealers.

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hi,
thanks for getting back to me.

this is from the PassPerfect prep course. I’m using PP & Achievable.

Pass Perfect
‘Under the provisions of the Uniform Securities Act, to register as an investment adviser representative, which of the following are NOT required?’
I - Posting of a surety bond
II - Filing of a consent to service of process
III - Passing of a qualification examination
IV- Posting of minimum net capital

Investment adviser representatives are not required to post minimum net capital to be registered; only the investment adviser (the firm) is required to do so. Only investment advisers may be required to post a surety bond - this is not a requirement for investment adviser representatives (note that it is a requirement for agents of broker-dealers, however). Investment advisers and IARs must file a consent to service of process on the initial registration (this appoints the Administrator as the person authorized to receive lawsuits filed against the advisory firm or its registered employees). Finally, IARs must pass a qualification exam.

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You have to be careful with this rule - investment advisers (firms) may be required to post surety bonds, but there are no surety bond requirements with investment adviser representatives (IARs - these are the registered individuals employed by adviser firms).

We cover this concept in our materials. Here’s a quote:

IAR registration is unique in two ways. First, the state administrator does not require surety bonds for IARs. However, surety bonds may be required for broker-dealers, agents, and state-registered investment advisers.

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