NASAA Series 63Regulation of Investment Advisers and IARsHard
A state-registered investment adviser has custody of client funds and securities. The adviser's most recent balance sheet shows net worth of $20,000. NASAA's model rule requires a minimum net worth of $35,000 for advisers with custody. To comply, what must the adviser do?
- AObtain a surety bond in the amount of $15,000, the deficiency between required and actual net worth
- BIncrease its advisory fees until net worth reaches $35,000
- CNothing, since custody itself does not trigger a minimum net worth requirement
- DObtain a surety bond in the amount of $35,000, the full required net worth
Show answer & explanationAnswer & explanation
Correct answer: A. Obtain a surety bond in the amount of $15,000, the deficiency between required and actual net worth
An adviser that fails to meet the minimum net worth requirement may satisfy the deficiency by obtaining a surety bond equal to the shortfall, not the full required amount. Here, $35,000 required minus $20,000 actual equals a $15,000 deficiency, so a $15,000 bond is required.
Why the other options are wrong
- B. Raising fees does not immediately or reliably cure a net worth deficiency under the rule.
- C. Custody does trigger heightened minimum net worth requirements under NASAA's model rule.
- D. The bond need only cover the deficiency, not the entire required net worth amount.
Minimum Net Worth & Bonding (Custody)
NASAA's model rule requires advisers with custody to maintain a minimum net worth (commonly $35,000); if net worth is deficient, the adviser must obtain a surety bond covering the shortfall.
- $35,000 minimum net worth typical for custody
- $10,000 minimum net worth typical for discretion without custody
- Bond amount equals the deficiency, not the full requirement
Memory trick: Bond the gap, not the whole map.