Minnesota RIAs: Understanding MN's Net Capital and Bonding Requirements

Dec. 21, 2017

If you are seeking registration as an investment adviser in Minnesota, you may find yourself scratching your head trying to figure out whether you are subject to certain net capital and/or bonding requirements.   Specifically, the way Minn. Rule 2876.4112  interplays with Minn. Rule 2876.4115 and Minn. Stat. 80A.66 is confusing, and requires some careful cross referencing and mental gymnastics to interpret.  Hopefully this guidance will help you stick the landing.

 

The main thing you need to know is that RIAs that have custody of or discretion over client assets or securities are subject to certain net capital requirements.  Such RIAs may also need to post a surety bond, irrevocable letter of credit, or other form of security (though, as always, certain exceptions may apply).  Here’s some highlights to help you understand these requirements:

 

  • RIAs that do not have custody or discretion are not subject to a minimum net capital requirement;

  • RIAs that accept prepayment of more than $500 per client six or more months in advance must at all times maintain a positive net capital;

  • RIAs with discretion, but not custody, must maintain at all times a minimum net capital of at least $10,000;

  • RIAs with custody must maintain at all times a net capital of at least $35,000;

  • RIAs with custody or discretion must post a surety bond or irrevocable letter of credit, unless the RIA continuously maintains a net capital of at least $100,000 (in which case they are exempt from that requirement).

 

Or, to put this in a more visual format:

              

MN-based RIA Structure

Minimum Net Capital Requirements

Bond required?

No discretion; no custody

None.

No.

Accepts $500 prepayment six+ months in advance

Must be positive

No. (unless RIA also has discretion and/or custody)

Discretion; no custody

$10,000

Yes. (unless net capital of $100,000)

Custody

$35,000

Yes. (unless net capital of $100,000)

 


Written By:
Brian Edstrom

Brian Edstrom is a Shareholder and Attorney at Avisen Legal, P.A. He brings to Avisen seven years of experience working for federal and state regulators.

E-mail Brian

Offices:
901 Marquette Ave S.
Suite 1675
Minneapolis, MN 55302

Call Us:

(612) 584-3400