Mich. Admin. Code R. 451.4.17 - Minimum financial requirements for investment advisers
Rule 4.17.
(1)
For purposes of this rule "net worth" means an excess of assets over
liabilities, as determined by generally accepted accounting principles, but
does not include as assets any of the following: prepaid expenses, except as to
items properly classified assets under generally accepted accounting
principles; deferred charges; goodwill; franchise rights; organizational
expenses; patents; copyrights; marketing rights; unamortized debt discount and
expense; all other assets of intangible nature; home; home furnishings; an
automobile or automobiles; any other personal items not readily marketable in
the case of an individual; advances or loans to stockholders and officers in
the case of a corporation; and, advances or loans to partners in the case of a
partnership.
(2) 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 $35,000.00 except for the following circumstances:
(a) An investment adviser having custody
solely due to direct fee deduction and complying with the terms described under
R 451.4.13 and related books and records, as described in R 451.4.24, is not
required to comply with the net worth or bonding requirements of this
rule.
(b) An investment adviser
having custody solely due to advising pooled investment vehicles and complying
with the terms described under R 451.4.13 and related books and records, as
described in R 451.4.24 is not required to comply with the net worth or bonding
requirements of this rule.
(3) An 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
$10,000.00.
(4) An investment
adviser registered, or required to be registered, under the act who accepts
prepayment of more than $500.00 per client and 6 or more months in advance
shall maintain at all times a positive net worth.
(5) 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 administrator if such investment
advisers 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 all of 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.
(d) A statement as to the number of client
accounts.
(6) An
investment adviser is not exercising discretion when it places trade orders
with a broker-dealer pursuant to a third party trading agreement if all of the
following have occurred:
(a) The investment
adviser has executed with its client a separate investment adviser contract
that acknowledges that a third party trading agreement must be executed to
allow the investment adviser to effect securities transactions for the client
in the clients 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.
(c) A third party trading agreement is
executed between the client and a broker-dealer that specifically limits the
investment advisers authority in the clients broker-dealer account to the
placement of trade orders and deduction of investment adviser fees.
(7) The administrator may require
that a current appraisal be submitted in order to establish the worth of any
asset.
(8) An investment adviser
that has its principal place of business in a state other than this state shall
maintain only such minimum net worth as required by the state in which the
investment adviser maintains its principal place of business, provided the
investment adviser is registered or licensed in such state and is in compliance
with such states minimum capital requirements.
Notes
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