Net Capital Requirements
States commonly require investment advisers to meet net capital requirements both prior to registration and at all times while their registration remains active. This means that their personal net worth (assets minus debts) must not fall below a certain amount.
In calculating this net worth, the adviser must exclude all assets that cannot readily be converted into cash. This would include their personal residence, automobiles, and any intangible assets such as patents or trademarks.
The amount of net capital they are required to have depends on the nature of their practice, with advisers having actual custody of their client assets being required to demonstrate the most net capital.
The current NASAA recommended net capital requirements are:
- • $35,000 for advisers with custody over client assets, except those advisers who only have custody for purposes of deducting their fees or managing a pooled investment.
- • $10,000 for advisers who do not have custody over client assets, but have discretionary authority over the transactions in their clients’ accounts.
Test Note: “Discretionary authority” is when an adviser or agent has been granted permission to make trades in an account without receiving prior approval from the customer for each trade. A third-party trading ag