INVESTMENT ADVISER MINIMUM FINANCIAL AND REPORTING REQUIREMENTS

(1) If you have custody of client funds or securities, you must maintain at all times a minimum net worth of $35,000.

(2) If you have discretionary authority over client funds or securities but do not have custody of client funds or securities, you must maintain at all times a minimum net worth of $10,000.

(3) If you accept prepayment of more than $500 per client and six or more months in advance, you must maintain at all times a positive net worth.

You must maintain a record of the proof of money balances of all ledger accounts in the form of trial balances and a record of the computations of minimum net worth as required under CCR § 260.237.2 (as of the trial balance date). The trial balances and computations must be prepared currently at least once a month.  [CCR § 260.241.3(j)]

You should maintain minimum capital as required by the state in which you maintain your principal place of business, provided you are Licensed or registered in such state and are in compliance with such state’s minimum capital requirements.  If you are not Licensed or registered in the state where you maintain your principal place of business, you are subject to California’s minimum financial requirements.

The minimum financial requirements do not apply if you are also Licensed as a broker-dealer under Code Section 25210.

Unless otherwise exempted, as a condition of the right to continue to transact business in this state, every investment adviser must, by the close of business on the next business day following the discovery that the investment adviser’s net worth is less than the minimum required, notify the Commissioner of the Department of Financial Protection and Innovation (“Commissioner”).  After transmitting such notice, each investment adviser will file by the close of business on the next business day a report with the Commissioner of its financial condition, including the following:

• A trial balance of all ledger accounts;
• A statement of all client funds or securities which are not segregated;
• A computation of the aggregate amount of client ledger debit balances; and
• A statement as to the number of client accounts.

If you are subject to the minimum financial requirements as found under CCR § 260.237.2, you must file monthly reports with the Commissioner within 15 days after your net worth is reduced to less than 120% of your required minimum net worth. Your interim report should include a balance sheet, income statement, supporting schedule containing the minimum financial requirements required under CCR § 260.237.2 and verification form.  The verification form (a) must affirmatively state, to the best knowledge and belief of the person making the verification, that the financial statements and supporting schedules are true and correct and (b) must be signed under penalty of perjury.  You may use the Verification Form Pursuant to CCR 260.241.2(b) form for this purpose.   You will need to file the interim report until you have filed three consecutive reports showing net worth greater than 120% of your required minimum net worth.

If you are subject to the minimum financial requirements as found under CCR § 260.237.2, you must file with the Commissioner, not more than 90 days after your fiscal year-end, an annual financial report that reflects your financial condition. The annual financial report is to contain a balance sheet and income statement prepared in accordance with generally accepted accounting principles.  The annual report should also include a supporting schedule containing the minimum financial requirements required under CCR § 260.237.2.

If you have held or accepted custody of funds and/or securities for or owe money or securities to customers or clients during the period covered, you must file audited financial statements prepared by an independent certified public accountant or independent public accountant.   If you only havediscretionary authority over client funds or securities, the financial statements need not be audited.

A verification form must accompany the financial statements. The verification form (a) must affirmatively state, to the best knowledge and belief of the person making the verification, that the financial statements and supporting schedules are true and correct and (b) must be signed under penalty of perjury. You may use the Verification Form Pursuant to CCR 260.241.2(b) form for this purpose.