For investment advisers, under what condition might they not have to maintain a surety bond?

Investment advisers are typically required to maintain a surety bond to protect clients in cases of fraud, misappropriation, or other financial misconduct. However, the obligation to maintain a surety bond can be waived under specific conditions, which is why not having custody of client funds is key.

When an investment adviser does not have custody of client funds, the risk of misappropriation is significantly reduced. Custody implies that the adviser holds the client's assets or has the ability to withdraw funds directly, which increases the potential for unethical practices. If an adviser only provides financial advice without touching clients' funds, the rationale for maintaining such a bond diminishes, as there is less risk to clients' assets directly attributable to the adviser's actions.

In contrast, clients being located out of state, the adviser being in business for less than a year, or operating online only, does not inherently eliminate risks that justify the need for a surety bond. Each of these scenarios can still involve situations where the adviser might have to assume potential liabilities that a bond would cover, especially if there is any interaction with client funds. Therefore, the absence of custody of client funds provides a clear exception to the bonding requirement, aligning with regulatory measures aimed at protecting clients while also acknowledging the