2014 New Hampshire Revised Statutes
Title XXXVIII - SECURITIES
Chapter 421-B - SECURITIES
Section 421-B:8 - Post-Licensing Provisions; Records, Reports and Replies.

    421-B:8 Post-Licensing Provisions; Records, Reports and Replies. –
    I. Every broker-dealer or issuer-dealer doing business in this state unless otherwise directed shall, within 60 days after the close of the fiscal year, make and transmit to the secretary of state a filing under oath of its chief managing officer showing or providing the financial statement, changes in management, changes in ownership, and any significant changes in the method of doing business for the preceding fiscal year, except as provided by section 15(h) of the Securities Exchange Act of 1934 in the case of a broker-dealer, and section 222 of the Investment Advisers Act of 1940 in the case of an investment adviser. Said filing shall include statements or periodic reports filed with any regulatory, state or federal authority or exchange if so directed by order or rule of the secretary of state. Every broker-dealer shall include audited financial statements certified by an independent certified public accountant consisting of a balance sheet, income statement, statement of cash flows, a reconciliation of surplus and appropriate notes prepared in accordance with generally accepted accounting principles.
    II. The secretary of state may extend the time for filing such statement for cause shown for a period of not more than 60 days. A broker-dealer or issuer-dealer failing to file its annual statement as required by paragraph I shall forfeit to the state $25 for each day of delinquency, provided, however, that the secretary of state may, for good cause shown, abate all or a portion of said delinquency penalty. The secretary of state may refuse to continue, or may suspend or revoke, the license of any broker-dealer or issuer-dealer failing to file its annual statement when due. When the sixtieth day falls on a weekend, or on a New Hampshire state or federal legal holiday, the due date shall be automatically extended to the next business day following such weekend or holiday.
    III. In addition to the above, the secretary of state may require at any reasonable time and in any reasonable manner from any person or company subject to this chapter:
       (a) Statements, reports, including reports audited by independent public accountants, answers to questionnaires and other information, and evidence thereof, in whatever reasonable form he designates, and at such reasonable intervals as he may choose, or from time to time;
       (b) A full explanation of the programming of any data storage or communications systems in use; and
       (c) Information from any books, records, electronic data processing systems, computers or any other information storage system.
    IV. The secretary of state may prescribe forms for the reports under paragraph III. The forms shall be consistent, as far as practicable, with those prescribed by other states.
    V. Any officer, manager or agent of any broker-dealer, investment adviser, or issuer-dealer authorized to do or doing securities business in this state, and any person controlling or having a contract under which he has a right to control such a broker-dealer, investment adviser, or issuer-dealer, whether exclusively or otherwise, and any person with executive authority over or in charge of any segment of such a broker-dealer's, investment adviser's, or issuer-dealer's affairs, shall reply promptly in writing or in other designated form, to any written inquiry from the secretary of state requesting a reply.
    VI. The secretary of state may require that any communication made to him under this section be verified.
    VII. In the absence of actual malice, no communication required by the secretary of state under this section shall subject the person making it to an action for damages for defamation.
    VIII. The information obtained pursuant to paragraph III shall be privileged.
    IX. Any director, officer, agent or employee of any broker-dealer, investment adviser, or issuer-dealer who subscribes to, makes, or concurs in making or publishing, any annual or other statement required by law, having actual knowledge that the same contains any material statement which is false, shall be guilty of a misdemeanor if a natural person, or guilty of a felony if any other person.
    IX-a. If the information contained in any document filed with the secretary of state is or becomes inaccurate or incomplete in any material respect, the licensee or federal covered adviser shall file a correcting amendment promptly if the document is filed with respect to a licensee or when such amendment is required to be filed with the Securities and Exchange Commission if the document is filed with respect to a federal covered adviser, unless notification of the correction has been given under RSA 421-B:6, II.
    X. Persons licensed under this chapter to conduct securities business shall abide by the rules of the Securities and Exchange Commission, National Association of Securities Dealers, national and regional stock exchanges, and other self-regulating organizations which have jurisdiction over the licensee, which set forth standards of conduct in the securities industry.
    XI. With respect to investment advisers, the secretary of state may require that certain information be furnished or disseminated as necessary or appropriate in the public interest or for the protection of investors and advisory clients. To the extent determined by the secretary of state, in the secretary of state's discretion, information furnished to clients or prospective clients of an investment adviser that would be in compliance with the Investment Advisers Act of 1940 and the rules thereunder may be used in whole or partial satisfaction of this requirement.
    XII. (a) Every licensed broker-dealer and investment adviser shall make and keep such accounts, correspondence, memoranda, papers, books, and other records as the secretary of state prescribes by rule or order, except as provided by section 15 of the Securities Exchange Act of 1934 in the case of a broker-dealer, and section 222 of the Investment Advisers Act of 1940 in the case of an investment adviser. All records so required, shall be true and accurate, and shall be preserved for a period of not less than 6 years, the first 2 years in an easily accessible place and form, subject to the exceptions previously referenced in this section.
       (b) Every broker-dealer licensed or required to be licensed under this chapter shall, at a minimum, make and keep true, accurate, and current the following records:
          (1) Unless otherwise provided by order of the Securities and Exchange Commission, each broker-dealer licensed or required to be licensed under this chapter shall make, maintain and preserve books and records in compliance with Securities and Exchange Commission rules 17a-3 (17 C.F.R. 240.17a-3), 17a-4 (17 C.F.R. 240.17a-4), 15c2-6 (17 C.F.R. 240.15c2-6), and 15c2-11 (17 C.F.R. 240.15c2-11).
          (2) To the extent that the Securities and Exchange Commission promulgates changes to the above-referenced rules, broker-dealers in compliance with such rules as amended shall not be subject to enforcement action by the secretary of state for violation of this section to the extent that the violation results solely from the broker-dealer's compliance with the amended rules.
       (c) Every investment adviser licensed or required to be licensed under this chapter shall make and keep true, accurate and current the following books, ledgers, and records:
          (1) A journal or journals, including cash receipts and disbursements records, and any other records of original entry forming the basis of entries in any ledger.
          (2) General and auxiliary ledgers or other comparable records, reflecting asset, liability, reserve, capital, income, and expense accounts.
          (3) A memorandum of each order given by the investment adviser for the purchase or sale of any security or any instruction received by the investment adviser from the client concerning the purchase, sale, receipt, or delivery of a particular security, and of any modification or cancellation of any such order or instruction. Such memoranda shall show the terms and conditions of the order, instruction, modification, or cancellation; shall identify the person connected with the investment adviser who recommended the transaction to the client and the person who placed such order; and shall show the account for which entered, the date of entry, and the bank or broker-dealer by or through whom executed where appropriate. Orders entered pursuant to the exercise of discretionary power shall be so designated.
          (4) All checkbooks, bank statements, canceled checks, and cash reconciliations of the investment adviser.
          (5) All bills or statements (or copies thereof), paid or unpaid, relating to the business of the investment adviser as such.
          (6) All trial balances, financial statements, and internal audit working papers relating to the business of such investment adviser.
          (7) Originals of all written communications received and copies of all written communications sent by such investment adviser relating to (A) any recommendation made, or proposed to be made and any advice given or proposed to be given, (B) any receipt, disbursement or delivery of funds or securities, or (C) the placing or execution of any order to purchase or sell any security; provided, however, (i) that the investment adviser shall not be required to keep any unsolicited market letters and other similar communications of general public distribution not prepared by or for the investment adviser, and (ii) that if the investment adviser sends any notice, circular or other advertisement offering any report, analysis, publication, or other investment advisory service to more than 10 persons, the investment adviser shall not be required to keep a record of the names and addresses of the persons to whom it was sent; except that if such notice, circular or advertisement is distributed to persons named on any list, the investment adviser shall retain with the copy of such notice, circular or advertisement, a memorandum describing the list and the source thereof.
          (8) A list or other record of all accounts in which the investment adviser is vested with any discretionary power with respect to the funds, securities, or transactions of any client.
          (9) All powers of attorney and other evidences of the granting of any discretionary authority by any client to the investment adviser, or copies thereof.
          (10) All written agreements (or copies thereof) entered into by the investment adviser with any client or otherwise relating to the business of such investment adviser as such.
          (11) A copy of each notice, circular, advertisement, newspaper article, investment letter, bulletin, or other communication that the investment adviser circulates or distributes, directly or indirectly, to 10 or more persons (other than persons connected with such investment adviser) and, if such notice, circular, advertisement, newspaper article, investment letter, bulletin, or other communication recommends the purchase or sale of a specific security and does not state the reasons for such recommendation, a memorandum of the investment adviser indicating the reasons therefor.
          (12) (A) A record of every transaction in a security in which the investment adviser or any advisory representative of such investment adviser has, or by reason of such transaction, acquires any direct or indirect beneficial ownership, except (i) transactions effected in any account over which neither the investment adviser nor any advisory representative of the investment adviser has any direct or indirect influence or control; and (ii) transactions in securities which are direct obligations of the United States. Such record shall state the title and amount of the security involved; the date and nature of the transaction (i.e., purchase, sale, or other acquisition or disposition); the price at which it was effected; and the name of the broker-dealer or bank with or through whom the transaction was effected. Such record may also contain a statement declaring that the reporting or recording of any such transaction shall not be construed as an admission that the investment adviser or advisory representative has any direct or indirect beneficial ownership in the security. A transaction shall be recorded not later than 10 days after the end of the calendar quarter in which the transaction was effected.
             (B) For purposes of this subparagraph (c)(12) the term "advisory representative'' shall mean any partner, officer, or director of the investment adviser; any employee who makes any recommendation, who participates in the determination of which recommendation shall be made, or whose functions or duties relate to the determination of which recommendation shall be made; any employee who, in connection with the employee's duties, obtains any information concerning which securities are being recommended prior to the effective dissemination of such recommendations or of the information concerning such recommendations; and any of the following persons who obtain information concerning securities recommendations being made by such investment adviser, prior to the effective dissemination of such recommendations or of the information concerning such recommendations: (i) any person in a control relationship to the investment adviser, (ii) any affiliated person of such controlling person, and (iii) any affiliated person of such affiliated person. "Control'' shall have the same meaning as that set forth in section 2(a)(9) of the Investment Company Act of 1940, as amended.
             (C) An investment adviser shall not be deemed to have violated the provisions of this subparagraph because of failure to record securities transactions of any investment advisory representative if the investment adviser establishes that adequate procedures were instituted and reasonable diligence used to obtain promptly reports of all transactions required to be recorded.
          (13) (A) Notwithstanding the provisions of subparagraph (c)(12) where the investment adviser is primarily engaged in a business or businesses other than advising advisory clients, a record shall be maintained of every transaction in a security in which the investment adviser or any advisory representative of such investment adviser has, or by reason of such transaction acquires, any direct or indirect beneficial ownership, except (i) transactions effected in any account over which neither the investment adviser nor any advisory representative of the investment adviser has any direct or indirect influence or control; and (ii) transactions in securities which are direct obligations of the United States. Such record shall state the title and amount of the security involved; the date and nature of the transaction (i.e., purchase, sale or other acquisition or disposition); the price at which it was effected, and the name of the broker-dealer or bank with or through whom the transaction was effected. Such record may also contain a statement declaring that the reporting or recording of any such transaction shall not be construed as an admission that the investment adviser or advisory representative has any direct or indirect beneficial ownership in the security. A transaction shall be recorded not later than 10 calendar days after the end of the calendar quarter in which the transaction was effected.
             (B) An investment adviser is "primarily engaged in a business or businesses other than advising advisory clients'' when, for each of its most recent 3 fiscal years or for the period of time since organization, whichever is less, the investment adviser derived, on an unconsolidated basis, more than 50 percent of (i) its total sales and revenues, and (ii) its income or loss before income taxes and extraordinary items, from such other business or businesses.
             (C) For purposes of this subparagraph (c)(13), the term "advisory representative,'' when used in connection with a company primarily engaged in a business or businesses other than advising advisory clients, means any partner, officer, director, or employee of the investment adviser who makes any recommendation, who participates in the determination of which recommendation shall be made or whose functions or duties relate to the determination of which recommendation shall be made, or whose functions or duties relate to the determination of which securities are being recommended prior to the effective dissemination of such recommendations or of the information concerning such recommendations; and any of the following persons who obtain information concerning securities recommendations being made by such investment adviser prior to the effective dissemination of such recommendations or of the information concerning such recommendations: (i) any person in a control relationship to the investment adviser, (ii) any affiliated person of such controlling person, and (iii) any affiliated person of such affiliated person. "Control'' shall have the same meaning as that set forth in section 2(a)(9) of the Investment Company Act of 1940, as amended.
             (D) An investment adviser shall not be deemed to have violated the provisions of this subparagraph (c)(13) because of failure to record securities transactions of any advisory representative if the investment adviser establishes that adequate procedures were instituted and reasonable diligence used to obtain promptly reports of all transactions required to be recorded.
          (14) (A) (i) A copy of each written statement and each amendment or revision thereof, given or sent to any client or prospective client of such investment adviser;
                (ii) Any summary of material changes that is required by Part 2 of Form ADV but is not contained in the written statement; and
                (iii) A record of the dates that each written statement, each amendment or revision thereto, and each summary of material changes was given or offered to any client or to any prospective client who subsequently becomes a client.
             (B) A memorandum describing any legal or disciplinary event listed in Item 8 of Part 2A or Item 3 of Part 2B of Form ADV and presumed to be material, if the event involved the investment adviser or any of its supervised persons and is not disclosed in the written statements described in subparagraph XII(c)(14)(A). The memorandum shall explain the investment adviser's determination that the presumption of materiality is overcome, and shall discuss the factors described in those items.
          (15) All accounts, books, internal working papers, and any other records or documents that are necessary to form the basis for or demonstrate the calculation of the performance or rate of return of any or all managed accounts or securities recommendations in any notice, circular, advertisement, newspaper article, investment letter, bulletin, or other communication that the investment adviser circulates or distributes, directly or indirectly, to 10 or more persons (other than persons connected with such investment adviser); provided, however, that, with respect to the performance of managed accounts, the retention of all account statements, if they reflect all debts, credits, and other transactions in a client's account for the period of the statement, and all worksheets necessary to demonstrate the calculation of the performance or rate of return of all managed accounts shall be deemed to satisfy the requirements of this subparagraph.
          (16) Copies, with original signatures of the investment adviser's appropriate signatory and the investment adviser representative, of each initial Form U-4 and each amendment to Disclosure Reporting Pages (DRPs U-4) must be retained by the investment adviser (filing on behalf of the investment adviser representative), and shall be made available for inspection upon regulatory request.
          (17) A separate file on all written complaints of customers and action taken by the investment adviser, if any, or a separate record of such complaints and a clear reference to the files containing the correspondence connected with such complaints as maintained in such office. A "complaint'' shall be deemed to mean any written statement of a customer or any person acting on behalf of a customer alleging a grievance involving the activities of those persons under the control of the investment adviser in connection with the solicitation or execution of any transaction or the disposition of securities or funds of that customer.
          (18) A litigation file open to inspection by the secretary of state documenting any criminal or civil actions filed in any state or federal court against the investment adviser's branch office or against any of its personnel with respect to a securities transaction and the disposition of any such litigation.
       (d) If an investment adviser subject to subparagraph (c) has custody or possession of securities or funds of any client, the records required to be made and kept under subparagraph (b), shall also include:
          (1) A journal or other record showing all purchases, sales, receipts, and deliveries of securities (including certificate numbers) for such accounts, and all other debits and credits to such accounts.
          (2) A separate ledger account for each such client showing all purchases, sales, receipts, and deliveries of securities, the date and price of each such purchase and sale, and all debits and credits.
          (3) Copies of confirmations of all transactions effected by or for the account of any such client.
          (4) A record for each security in which any such client has a position, which record shall show the name of each such client having any interest in each security, the amount or interest of each such client, and the location of each such security.
       (e) Every investment adviser subject to subparagraph (c) who renders any investment supervisory or management service to any client shall, with respect to the portfolio being supervised or managed and to the extent that the information is reasonably available to or obtainable by the investment adviser, make and keep true, accurate, and current:
          (1) Records showing separately for each such client the securities purchased and sold, and the date, amount, and price of each such purchase and sale.
          (2) For each security in which any such client has a current position, information from which the investment adviser can promptly furnish the name of each such client, and the current amount or interest of such client.
       (f) Any books or records required by this paragraph may be maintained by the investment adviser in such manner that the identity of any client to whom such investment adviser renders investment advisory services is indicated by numerical or alphabetical code or some similar designation.
       (g)(1) All books and records required to be made under the provisions of subparagraphs (a)-(e)(1) and (h) and (i), inclusive of this paragraph (except for books and records required to be made under the provisions of subparagraphs (c)(11) and (c)(15) of this paragraph), shall be maintained and preserved in an easily accessible place for a period of not less than 5 years from the end of the fiscal year during which the last entry was made on such record, the first 2 years in an appropriate office of the investment adviser.
          (2) Partnership articles and any amendments thereto, articles of incorporation, charters, minute books, and stock certificate books of the investment adviser and of any predecessor shall be maintained in the principal office of the investment adviser and preserved until at least 3 years after termination of the enterprise.
          (3) Books and records required to be made under the provisions of subparagraphs (c)(11) and (c)(15) shall be maintained and preserved in an easily accessible place for a period of not less than 5 years, the first 2 years in an appropriate office of the investment adviser, from the end of the fiscal year during which the investment adviser last published or otherwise disseminated, directly or indirectly, any notice, circular, advertisement, newspaper article, investment letter, bulletin, or other communication.
       (h) An investment adviser subject to subparagraph (c) of this paragraph, before ceasing to conduct or discontinuing business as an investment adviser, shall arrange for and be responsible for the preservation of the books and records required to be maintained and preserved under this paragraph for the remainder of the period specified in this paragraph, and shall notify the secretary of state in writing of the exact address where such books and records will be maintained during such period.
       (i) (1) The records required to be maintained and preserved pursuant to this paragraph shall be immediately produced or reproduced by photograph, on film, or, as provided in subparagraph (i)(2), on magnetic disk, tape or other computer storage medium, and be maintained and preserved for the required time in that form. If records are produced or reproduced by the photographic film or computer storage medium, the investment adviser shall:
             (A) Arrange the records and index the films or computer storage medium so as to permit the immediate location of any particular record.
             (B) Be ready at all times to provide, and promptly provide, any facsimile enlargement of film or computer printout or copy of the computer storage medium which the secretary of state by its examiners or other representatives may request.
             (C) Store separately from the original one other copy of the film or computer storage medium for the time required.
             (D) With respect to records stored on computer storage medium, maintain procedures for maintenance and preservation of, and access to, records so as to reasonably safeguard records from loss, alteration, or destruction.
             (E) With respect to records stored on film, at all times have available for the secretary of state's examination its records pursuant to provisions of this chapter, and facilities for immediate, easily readable projection of the film and for producing easily readable facsimile enlargements.
          (2) Pursuant to subparagraph (i)(1) an investment adviser may maintain and preserve, on computer tape or disk or other computer storage medium, records which, in the ordinary course of the adviser's business, are created by the adviser on electronic media or are received by the adviser solely on electronic media or by electronic data transmission.
       (j) For purposes of this paragraph, "investment supervisory services'' means the giving of continuous advice as to the investment of funds on the basis of the individual needs of each client.
       (k) Every investment adviser that has its principal place of business in a state other than this state shall be exempt from the requirements of this paragraph, provided the investment adviser is licensed in such state and is in compliance with such state's recordkeeping requirements.
    XIII. (a) (1) Unless otherwise provided in this section, an investment adviser licensed or required to be licensed under this chapter shall, in accordance with the provisions of this section, furnish each advisory client and prospective advisory client with a written disclosure statement which may be a copy of Part II of its Form ADV or written documents containing at least the information then so required by Part II of Form ADV, and such other information as the secretary of state may require. When Form ADV, Part 2 replaces Form ADV, Part II, each investment adviser shall furnish each advisory client and prospective advisory client with a firm brochure and one or more supplements as required by this section. The brochure and supplements shall contain all information required by Part 2 of Form ADV, (17 C.F.R. 279.1), and such other information as the secretary of state may require.
          (2) An investment adviser shall deliver:
             (A) The current brochure required by this section to a client or prospective client, and
             (B) The current brochure supplements for each investment adviser representative who will provide advisory services to the client. For purposes of this section, an investment adviser representative shall provide advisory services to a client if the investment adviser representative will:
                (i) Regularly communicate investment advice to that client; or
                (ii) Formulate investment advice for assets of that client; or
                (iii) Make discretionary investment decisions for assets of that client; or
                (iv) Solicit, offer or negotiate for the sale of or sell investment advisory services.
          (3) An investment adviser shall deliver the disclosure statement required by this section to an advisory client or prospective advisory client not less than 48 hours prior to entering into any investment advisory contract with such client or prospective client, or at the time of entering into any such contract, if the advisory client has the right to terminate the contract without penalty within 5 business days after entering into the contract.
       (b) Any disclosure statement requested in writing by an advisory client pursuant to an offer required by this subdivision shall be mailed or delivered within 7 days of the receipt of the request.
       (c) If the adviser is the general partner of a limited partnership, the manager of a limited liability company, or the trustee of a trust, then for purposes of this section the investment adviser shall treat each of the partnership's limited partners, the company's members, or the trust's beneficial owners as a client. For purposes of this section, a limited liability partnership or limited liability limited partnership is a "limited partnership.''
       (d) If an investment adviser renders substantially different types of investment advisory services to different advisory clients, the investment adviser may provide them with different disclosure documents or brochures, provided that each client receives all applicable information about services and fees. The brochure delivered to a client may omit any information required by Part 2A of Form ADV if such information is applicable only to a type of investment advisory service or fee that is not rendered or charged, or proposed to be rendered or charged, to that client or prospective client.
       (e) The investment adviser shall amend its brochure and any brochure supplements and deliver the amendments to clients promptly when information contained in the brochure or brochure supplements becomes materially inaccurate. The instructions to Part 2 of Form ADV contain updating and delivery instructions that the investment adviser shall follow. An amendment will be considered to be delivered promptly if the amendment is delivered within 30 days of the event that requires the filing of the amendment.
       (f) Nothing in this paragraph shall relieve any investment adviser from any obligation pursuant to any provision of this chapter or the rules and regulations thereunder or other federal or state law to disclose any information to its advisory clients or prospective advisory clients not specifically required by this paragraph.
       (g) (1) If the investment adviser is a sponsor of a wrap fee program, then the brochure, required to be delivered by subparagraph XIII(a) to a client or prospective client of the wrap fee program, must be a wrap fee brochure containing all information required by Form ADV. Any additional information in a wrap fee brochure shall be limited to information applicable to wrap fee programs that the investment adviser sponsors.
          (2) The investment adviser does not have to offer or deliver a wrap fee brochure if another sponsor of the wrap fee program offers or delivers to the client or prospective client of the wrap fee program a wrap fee program brochure containing all the information the investment adviser's wrap fee program brochure must contain.
          (3) A wrap fee brochure does not take the place of any brochure supplements that the investment adviser is required to deliver under this paragraph.
       (h) All investment advisers licensed or required to be licensed under this chapter must deliver to each of their clients their current brochure and all required brochure supplements within 30 days from the date of effectiveness of Part 2 of Form ADV.
       (i) For the purpose of this paragraph:
          (1) "Current brochure'' and "current brochure supplement'' mean the most recent revision of the brochure or brochure supplement, including all subsequent amendments (i.e., stickers).
          (2) "Entering into'' in reference to an investment advisory contract, does not include an extension or renewal without material change of any such contract which is in effect immediately prior to such extension or renewal.
          (3) "Sponsor'' of a wrap fee program means an investment adviser that is compensated under a wrap fee program for sponsoring, organizing, or administering the program, or for selecting, or providing advice to clients regarding the selection of other investment advisers in the program.
          (4) "Wrap fee program'' means an advisory program under which a specified fee or fees, not based directly upon transactions in a client's account, is charged for investment advisory services (which may include portfolio management or advice concerning the selection of other investment advisers) and the execution of client transactions.
    XIV. (a) Every licensed investment adviser who has custody of client funds or securities or requires payment of advisory fees 6 months or more in advance and in excess of $500 per client shall file with the secretary of state an audited balance sheet as of the end of the investment adviser's fiscal year. Each balance sheet filed pursuant to this subparagraph shall be:
          (1) Examined in accordance with generally accepted auditing standards and prepared in conformity with generally accepted accounting principles;
          (2) Audited by an independent public accountant or an independent certified public accountant; and
          (3) Accompanied by an opinion of the accountant as to the report of financial position and by a note stating the principles used to prepare it, the basis of included securities, and any other explanations required for clarity.
       (b) [Repealed.]
       (c) The financial statements required by this paragraph shall be filed with the secretary of state within 90 days following the end of the investment adviser's fiscal year.
       (d) Every investment adviser that has its principal place of business in a state other than this state shall maintain such books or records as required by the state in which the investment adviser maintains its principal place of business, provided the investment adviser:
          (1) Is registered or licensed as such in the state in which it maintains its principal place of business; and
          (2) Is in compliance with the applicable books and records requirements of the state in which it maintains its principal place of business.
    XV. Every licensed broker-dealer shall comply with minimum financial requirements and financial reporting requirements as follows:
       (a) Each broker-dealer licensed or required to be licensed under this chapter shall comply with Securities and Exchange Commission Rules 15c3-1 (17 C.F.R. 240.15c3-1), 15c3-2 (17 C.F.R. 240.15c3-2), and 15c3-3 (17 C.F.R. 240.15c3-3).
       (b) Each broker-dealer licensed or required to be licensed under this chapter shall comply with Securities and Exchange Commission Rules 17a-11 (17 C.F.R. 240.17a-11) and shall file with the secretary of state upon request, or as required by this chapter or orders or rules promulgated thereunder, copies of notices and reports required under Securities and Exchange Commission Rules 17a-5, 17a-10, and 17a-11.
       (c) To the extent that the Securities and Exchange Commission promulgates changes to the above-referenced rules, broker-dealers in compliance with such rules as amended shall not be subject to enforcement action by the secretary of state for violation of this section to the extent that the violation results solely from the broker-dealer's compliance with the amended rules.
    XVI. Every licensed investment adviser shall comply with minimum financial requirements and financial reporting requirements as follows:
       (a) An investment adviser licensed or required to be licensed under this chapter who has custody of client funds or securities shall maintain at all times a minimum net worth of $35,000, and every investment adviser licensed or required to be licensed under this chapter 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.
       (b) Unless otherwise exempted, as a condition of the right to continue to transact business in this state, every investment adviser licensed or required to be licensed under this chapter shall by the close of business on the next business day notify the secretary of state if such investment adviser's total 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 secretary of state of its financial condition, including the following:
          (1) A trial balance of all ledger accounts;
          (2) A statement of all client funds or securities which are not segregated;
          (3) A computation of the aggregate amount of client ledger debit balances; and
          (4) A statement as to the number of client accounts.
       (c) For purposes of this paragraph, the term "net worth,'' shall mean an excess of assets over liabilities, as determined by generally accepted accounting principles, but shall not include as assets: prepaid expenses (except as to items properly classified as current 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, automobiles, and any other personal items not readily marketable in the case of an individual; advances or loans to stockbrokers and officers in the case of a corporation; and advances or loans to partners in the case of a partnership.
       (d) The secretary of state may require that a current appraisal be submitted in order to establish the worth of any asset.
       (e) For purposes of these rules an investment adviser shall not be deemed to be exercising discretion when it places a trade order with a broker-dealer, pursuant to a third party trading agreement if:
          (1) The investment adviser has executed a separate investment adviser contract exclusively with its client which acknowledges that a third party trading agreement will be executed to allow the investment adviser to effect securities transactions for the client in the client's broker-dealer account;
          (2) 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; and
          (3) A third party trading agreement is executed between the client and a broker-dealer 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.
       (f) Every investment adviser that has its principal place of business in a state other than this state shall maintain such minimal capital as required by the state in which the investment adviser maintains its principal place of business, provided the investment adviser is licensed in such state and is in compliance with such state's minimal capital requirements.

Source. 1981, 214:1. 1987, 411:2, 3. 1990, 100:2-4. 1991, 355:74. 1992, 288:31, 40. 1994, 388:6, 7. 1997, 296:12-14. 1999, 90:1. 2001, 260:9-12, eff. July 13, 2001. 2006, 245:11, eff. July 1, 2006. 2007, 104:8, eff. July 1, 2007. 2010, 101:2, eff. July 1, 2010.