Prepaid Fees & Financial Requirements
Prepayment over $500, six months ahead, triggers net worth and balance sheet rules.
What is Prepaid Fees & Financial Requirements?
A state-registered adviser that accepts more than $500 per client, six or more months in advance, must maintain a positive net worth and file an audited balance sheet. Separately, NASAA's model rule sets minimum net worth at $35,000 for advisers with custody and $10,000 for advisers with discretion but no custody; a shortfall can be covered by a bond. (For SEC-registered advisers, the brochure balance-sheet trigger is $1,200.)
Prepaid Fees & Financial Requirements: a worked example
An adviser billing a $1,000 annual planning fee upfront, for a year of service, has triggered the prepaid-fee rules.
More terms in Ethics & Fiduciary Obligations
Form ADV Part 2 Brochure Delivery
Deliver 48 hours before the contract, or at signing with a 5-business-day exit.
Advisory Contract Requirements
Written, specific about fees, no assignment without consent, no waiver of rights.
Assignment of an Advisory Contract
Transferring a client contract requires the client's consent - including by change of control.
Performance-Based Fees & Qualified Clients
Allowed only for qualified clients: $1.4M with the adviser or $2.7M net worth (from June 29, 2026).
Custody
Holding, or having authority to obtain, client funds or securities.
Discretionary Authority
Deciding the asset, the amount, or buy versus sell - without asking first.
Third-Party Trading Authorization
Anyone other than the owner needs written authority to trade the account.
Principal Transactions by Advisers
Selling to or buying from a client for the adviser's own account needs consent each time.