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 includes personal residences, 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. Advisers that have actual custody of their client assets are required to maintain the most net capital.
The current NASAA recommended net capital requirements are:
- • $35,000 for advisers with custody over client assets, except those advisers that only have custody for purposes of deducting their fees or managing a pooled investment
- • $10,000 for advisers that 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