(a)
Net worth requirements.
(1) An investment adviser registered under
section 301 of the act (
70 P.S. §
1-301) with its principal place of business
in a state other than this Commonwealth shall meet all of the following net
worth requirements:
(i) The same as imposed
by that state if the investment adviser is:
(A) Currently licensed as an investment
adviser in the state in which it maintains its principal place of
business.
(B) In compliance with
that state's net worth requirements.
(ii) If the investment adviser currently is
not licensed as an investment adviser in the state in which it maintains its
principal place of business, the net worth required under this section is the
same as if the investment adviser had its principal place of business in this
Commonwealth.
(2) Except
as provided in subsection (d), an investment adviser registered as a
broker-dealer under section 301 of the act that has its principal place of
business in this Commonwealth shall maintain a minimum net capital required
under Rule 15c3-1 ( 17 CFR
240.15c3-1 ) (relating to net
capital requirements for brokers or dealers).
(3) An investment adviser registered under
section 301 of the act that has its principal place of business in this
Commonwealth and has custody of client funds or securities shall maintain a
minimum net worth of $35,000 unless the investment adviser has custody solely
as the result of one of the following:
(i)
Has the authority to make withdrawals from client accounts maintained by a
qualified custodian to pay its advisory fee and the investment adviser:
(A) Possesses written authorization from the
client to deduct advisory fees from an account held by a qualified
custodian.
(B) Sends the qualified
custodian written notice of the amount of the fee to be deducted from the
client's account.
(C) Sends the
client a written invoice itemizing the fee, including any formulae used to
calculate the fee, the time period covered by the fee and the amount of assets
under management on which the fee was based.
(D) Notifies the Department in writing on
Form ADV that the investment adviser intends to use the safeguards provided in
clauses (A)-(C).
(ii)
Serves as a general partner, manager of a limited liability company or a person
occupying a similar status or performing a similar function which gives the
investment adviser or its supervised person legal ownership or access to client
funds or securities and the following conditions are met:
(A) The pooled investment vehicle is subject
to audit at least annually and distributes its audited financial statements
which have been prepared by an independent certified public accountant in
accordance with generally accepted accounting principles to all limited
partners, members or beneficial owners within 120 days of the end of its fiscal
year.
(B) The investment adviser:
(I) Hires an independent party to review all
fees, expenses and capital withdrawals from the accounts included in the pooled
investment vehicle before forwarding them to the qualified custodian with the
independent party's approval for payment.
(II) Sends written invoices or receipts to
the independent party describing:
(-a-) The amount of the fees, including any formulae used
to calculate the fees, the time period covered by the fees and the amount of
assets under management on which the fees were based.
(-b-) The expenses or capital withdrawals for the
independent party to verify that payment of the fees, expenses or capital
withdrawals is in accordance with the documents governing the operation of the
pooled investment vehicle and any statutory requirements applicable
thereto.
(III) Notifies the
Department in writing on Form ADV that the investment adviser intends to employ
the use of the audit safeguards in subclauses (I) and (II).
(4) An
investment adviser that has its principal place of business in this
Commonwealth and has discretionary authority over client funds or securities
but does not have custody of client funds or securities shall maintain a
minimum net worth of $10,000, unless the investment adviser places trade orders
with a broker-dealer under a third-party trading agreement and the following
conditions are met:
(i) The investment adviser
executes a separate investment adviser contract exclusively with its clients
that acknowledges that a third-party agreement will be executed to allow the
investment adviser to effect securities transactions for the client in the
client's broker-dealer account.
(ii) 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.
(iii) The investment adviser, the client and
the broker-dealer execute a third-party trading agreement 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.
(5) An investment
adviser that has its principal place of business in this Commonwealth and
accepts prepayment of advisory fees of more than 6 months in advance and more
than $1,200 per client shall maintain a positive net worth.
(b)
Notice to the
Department.
(1) As a condition of
the right to continue to transact business in this Commonwealth, an investment
adviser registered under the act shall notify the Department by the close of
business on the next business day if the investment adviser's total net worth
is less than the minimum required net worth.
(2) Within 24 hours after transmitting the
notice, the investment adviser shall file a report of its financial condition
including all of the following:
(i) A proof of
money balances of ledger accounts in the form of a trial balance.
(ii) A computation of net worth.
(iii) An analysis of clients' securities and
funds which are not segregated.
(iv) A computation of the aggregate amount of
clients' ledger debit balances.
(v)
A computation of the aggregate amount of clients' ledger credit
balances.
(vi) A statement as to
the number of client accounts.
(c)
Appraisals. For
investment advisers registered or required to be registered under the act, the
Department may require that a current appraisal be submitted to establish the
worth of an asset being calculated under the net worth formulation.
(d)
Exception. The
requirements of subsection (a)(2) do not apply to an investment adviser that
has its principal place of business in this Commonwealth and is registered as a
broker-dealer under section 15 of the Securities Exchange Act of 1934
(15 U.S.C.A. §
77o) if the broker-dealer is one of the
following:
(1) Subject to, and in compliance
with, Rule 15c3-1.
(2) A member of
a National securities exchange whose members are exempt from Rule 15c3-1 under
subsection (b)(2) and the broker-dealer is in compliance with all rules and
practices of the exchange imposing requirements with respect to financial
responsibility and the segregation of funds or securities carried for the
account of customers.
