02-032-515 Me. Code R. § 12

Current through 2024-51, December 18, 2024

Section 032-515-12 - Minimum financial requirements for investment advisers

1.Investment Advisers with Custody. An investment adviser licensed or required to be licensed under the Act that has custody of client funds or securities shall maintain at all times a minimum net worth of $35,000.

2.Investment Advisers with Discretionary Authority. An investment adviser licensed or required to be licensed under the Act that has discretionary authority over client funds or securities but does not have custody of client funds or securities shall maintain at all times a minimum net worth of $10,000.

3.Investment Advisers That Accept Prepayment of Fees. An investment adviser licensed or required to be licensed under the Act that accepts prepayment of fees of more than $500 per client six (6) or more months in advance shall maintain at all times a positive net worth.

4.Net Worth Less Than Minimum Requirement. Unless otherwise exempted, as a condition of the right to transact business in this state, every investment adviser licensed or required to be licensed under the Act shall by the close of business on the next business day notify the Administrator if that investment adviser's net worth is less than the minimum required. After transmitting such notice, each investment adviser shall file by the close of business on the next business day a report with the Administrator of its financial condition, including the following:

A. A trial balance of all ledger accounts;

B. A statement of all client funds or securities which are not segregated;

C. A computation of the aggregate amount of client ledger debit balances; and

D. A statement as to the number of client accounts.

5.Sectional Definition of Net Worth. For purposes of this section, the term "net worth" shall mean an excess of assets over liabilities, as determined by generally accepted accounting principles.

A. Net worth shall not include the following assets:

(1) prepaid expenses, except as to items properly classified assets under generally accepted accounting principles;

(2) deferred charges;

(3) goodwill;

(4) franchise rights;

(5) organizational expenses;

(6) patents;

(7) copyrights;

(8) marketing rights;

(9) unamortized debt discount and expense; and

(10) all other assets of intangible nature.

B. In addition, for individuals, net worth shall not include home, home furnishings, automobile(s) and any other personal items not readily marketable.

C. In addition, for corporations and limited liability companies, net worth shall not include advances or loans to stockholders, officers or members.

D. In addition, for partnerships, net worth shall not include advances or loans to partners.

6.Sectional Definition of Custody. For purposes of this section, a person will be deemed to have custody if he or she directly or indirectly holds client funds or securities, has any authority to obtain possession of them, or has the ability to appropriate them.

7.Sectional Definition of Discretion. For purposes of this section, an investment adviser shall not be deemed to be exercising discretion when it places trade orders with a broker-dealer pursuant to a third party trading agreement if:

A. The investment adviser has executed a separate investment adviser contract exclusively with its client which acknowledges that a third party trading agreement will be executed to allow the investment adviser to effect securities transactions for the client in the client's broker-dealer account;

B. The investment adviser contract specifically states that the client does not grant discretionary authority to the investment adviser and the investment adviser in fact does not exercise discretion with respect to the account; and

C. A third party trading agreement is executed between the client and a broker-dealer which specifically limits the investment adviser's authority in the client's broker-dealer account to the placement of trade orders and deduction of investment adviser fees.

8.Appraisal. The Administrator may require that a current appraisal be submitted in order to establish the worth of any asset.

9.Minimum Capital Requirement for Investment Advisers with Principal Place of Business Out of State. Every licensed investment adviser that has its principal place of business in a state other than Maine shall maintain only such minimum capital as required by such state, provided the investment adviser is licensed in such state and is in compliance with such state's minimum capital requirement.

02-032 C.M.R. ch. 515, § 12