When might an administrator waive the requirement for a surety bond for an investment adviser?

The requirement for a surety bond for an investment adviser can be waived under specific circumstances that are typically defined by regulatory guidelines. The correct answer pertains to the situation where there is no custody of client funds and the adviser maintains a net worth of at least $35,000.

In this context, a surety bond serves as a form of insurance that protects clients from losses due to potential fraud or mismanagement by the adviser. When an adviser does not hold client funds (i.e., has no custody), the risk of loss is significantly reduced. The requirement for a minimum net worth ensures that the adviser has a financial cushion, which can further mitigate risk to clients. Together, these factors demonstrate that the adviser's operations are sufficiently secure, warranting a waiver for the surety bond requirement, as the likelihood of client loss is minimized.

Other scenarios, such as an adviser's high net worth or their status as a sole proprietor, may not specifically align with the regulatory criteria that allow for the waiver of a surety bond. Therefore, the condition of no custody combined with a net worth of $35,000 is the most relevant and supports the rationale behind waiving the bond requirement.