6.10.506 MINIMUM FINANCIAL REQUIREMENTS FOR INVESTMENT ADVISERS
(1) An investment adviser registered or required to be registered under the Act who has custody of client funds or securities shall maintain at all times a minimum net worth of $35,000, and every investment adviser registered or required to be registered under the Act who 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.
(2) An investment adviser registered or required to be registered under the Act who has custody or discretion of client funds or securities, but does not meet the minimum net worth requirements in (1) shall be bonded in the amount of the net worth deficiency rounded up to the nearest $5,000. Any bond required by this section shall be:
(a) in the form determined by the commissioner;
(b) issued by a company qualified to do business in this state; and
(c) subject to the claim of all clients of the investment adviser regardless of the client's state of residence.
(3) An investment adviser registered or required to be registered under the Act who accepts prepayment of more than $500 per client and six or more months in advance shall maintain at all times a positive net worth.
(4) Unless otherwise exempted, as a condition of the right to transact business in this state, every investment adviser registered or required to be registered under the Act shall by the close of business on the next business day notify the commissioner if such 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 commissioner of its financial condition, including the following:
(a) a trial balance of all ledger accounts;
(b) a statement of all client funds or securities that 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) For purposes of this rule, the term "net worth" shall mean an excess of assets over liabilities, as determined by generally accepted accounting principles, but shall not include as assets:
(a) prepaid expenses (except as to items properly classified assets under generally accepted accounting principles) ;
(b) deferred charges;
(d) franchise rights;
(e) organizational expenses;
(h) marketing rights;
(i) unamortized debt discount and expense;
(j) all other assets of intangible nature;
(k) home furnishings;
(l) automobile(s) , and any other personal items not readily marketable in the case of an individual;
(m) advances or loans to stockholders and officers in the case of a corporation; and
(n) advances or loans to partners in the case of a partnership.
(6) For purposes of this rule, a person will be deemed to have custody if said person directly or indirectly holds client funds or securities, has any authority to obtain possession of them, or has the ability to appropriate them.
(7) For purposes of this rule, 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; and
(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) The commissioner may require that a current appraisal be submitted in order to establish the worth of any asset.
(9) Every investment adviser that has its principal place of business in a state other than this state shall maintain only such minimum capital as required by the state in which the investment adviser maintains its principal place of business, provided the investment adviser is licensed in such state and is in compliance with such state's minimum capital requirement.
History: 30-10-107, MCA; IMP, 30-10-107, 30-10-201, MCA; NEW, 1999 MAR p. 56, Eff. 1/15/99; TRANS, from ARM 6.10.140, 2008 MAR p. 2046, Eff. 9/26/08; AMD, 2020 MAR p. 1874, Eff. 10/24/20.