How does it work and when is it necessary?
A fidelity bond is an insurance policy that protects the insured against employee theft or other malfeasance. FINRA requires all of its member firms (broker dealers) to purchase fidelity bond coverage, with limited exceptions. Some RIAs also maintain fidelity bond coverage, although since most RIAs use an independent custodian to hold client assets, the custodian would have its own coverage. Note that a fidelity bond is different than errors and omissions (E&O) coverage, which protects against mistakes.