1. (a) An investment adviser registered under section 301 of the act (70 P.S. § 1-301) that has custody of client funds or securities or requires prepayment of advisory fees 6 months or more in advance and in excess of $1,200 per client shall file with the Department an audited balance sheet as of the end of its fiscal year with the following conditions:

   1. (1) The balance sheet shall be prepared in accordance with generally accepted accounting principles and contain an unqualified opinion of an independent certified public accountant.
   2. (2) The accountant shall submit, as a supplementary opinion, comments based on the audit as to material inadequacies found to exist in the accounting system, the internal accounting controls and procedures for safeguarding securities and funds, and shall indicate corrective action taken or proposed.

2. (b) An investment adviser registered under section 301 of the act that has discretionary authority over client funds or securities, but not custody, shall file with the Department a balance sheet as of the end of its fiscal year with the following conditions:

   1. (1) The balance sheet is not required to be audited but shall be prepared in accordance with generally accepted accounting principles.
   2. (2) The balance sheet must contain a representation by the investment adviser that it is true and accurate.
3. (c) A sole proprietor registered under section 301 of the act required to file an affirmative statement under § 303.012(c)(3) (relating to investment adviser registration procedure) shall file with the Department an affirmative statement as of the end of its fiscal year.
4. (d) Except as provided in subsections (e) and (f), investment advisers required to file the reports of financial condition set forth in subsections (a)—(c) shall file the reports with the Department within 120 days of the investment adviser’s fiscal year end.

5. (e) The requirements of subsection (d) do not apply to an investment adviser registered under section 301 of the act whose principal place of business is in a state other than this Commonwealth if the investment adviser:

   1. (1) Is registered in the state in which it maintains its principal place of business.
   2. (2) Is in compliance with the financial reporting requirements of the state in which it maintains its principal place of business.
   3. (3) Has not taken custody of assets of any client residing in this Commonwealth at any time during the preceding 12-month period.

6. (f) The requirements of subsection (d) do not apply to an investment adviser registered under section 301 of the act who:

   1. (1) Has custody of client funds or securities solely as a result of activities set forth in § 303.042(a)(3) (relating to investment adviser capital requirements).
   2. (2) Is in compliance with the requirements set forth in § 303.042(a)(3).

Authority

The provisions of this § 304.022 amended under sections 303(a) and (c), 304(b) and 609(a) of the Pennsylvania Securities Act of 1972 (70 P.S. § § 1-303(a) and (c), 1-304(a), (b) and (e) and 1-609(a)); section 202.C of the Department of Banking and Securities Code (71 P.S. § 733-202.C); and section 9(b) of the Takeover Disclosure Law (70 P.S. § 79(b)).

Source

The provisions of this § 304.022 amended June 26, 1987, effective June 27, 1987, 17 Pa.B. 2606; amended January 17, 1992, effective January 18, 1992, 22 Pa.B. 291; amended September 8, 1995, effective September 9, 1995, 25 Pa. B. 3722; amended September 1, 2000, effective September 2, 2000, 30 Pa.B. 4551; amended April 15, 2005, effective April 16, 2005, 35 Pa.B. 2307; transferred and renumbered from 64 Pa. Code § 304.022, December 14, 2012, effective December 15, 2012, 42 Pa.B. 7533; amended January 12, 2018, effective January 13, 2018, 48 Pa.B. 389. Immediately preceding text appears at serial pages (364764) to (364765).

Cross References

This section cited in 10 Pa. Code § 603.031 (relating to public inspection records).