Investment Adviser Custody Requirements
Investment advisers that have the ability to withdraw money from a client's account are considered to have custody of these funds. In that case, the Investment Advisers Act of 1940 requires the IA to:

  • Keep each client's securities segregated and held in safekeeping
  • Not commingle client funds with the IA's funds
  • Maintain client funds in accounts that name the IA as trustee or agent
  • Keep records for each client account showing deposits and withdrawals
  • Notify clients in writing of how the funds are maintained and when accounts are changed
  • Send quarterly (or more frequent) itemized statements to each client
  • Arrange an annual unannounced visit from an independent public accountant, who must then file a report with the SEC verifying the amount of client funds and securities

Exception:
These rules do not apply if the IA is also a broker-dealer, since broker-dealers are subject to similar rules at the federal level.


Under the Uniform Securities Act, IAs must notify the state administrator if they currently have custody of client funds and securities (or plan to in the future). Otherwise, the custody requirements are the same (except that the state administrator receives the annual accountant report, rather than the SEC).



Discretion

Related Articles
  1. Financial Advisor

    College Funding Decisions: 529 and Custodial Plans

    A look at the differences between custodial accounts and 529 plans, including which to draw upon first to begin funding your child’s college tuition.
  2. Financial Advisor

    What To Do When Your Client Behaves Badly

    As a financial advisor managing your client's assets is only part of the job; sometimes you have to manage your client, as well.
  3. Managing Wealth

    Asset Manager Ethics: Acting In the Benefit of Clients

    Investment managers should always act to benefit the client. Learn what actions managers should take on a client's behalf.
  4. Financial Advisor

    What Is Your Client's Willingness and Ability to Take Risk?

    Financial advisors must carefully consider a client's willingness and ability to take investment risks, including tax concerns and liquidity needs.
  5. Personal Finance

    When (And How) To Fire A Client

    Firing the clients who take more of your time and effort than the revenue they contribute is a great way to improve your bottom line.
  6. Financial Advisor

    How to Construct an Annual Review for Clients

    One of the best things that advisors can provide to clients is an annual review of their financial situation. Here are some guidelines.
  7. Investing

    How to Sell Mutual Funds to Your Clients

    Learn about the various talking points you should cover when discussing mutual funds with clients and how explaining their benefits can help you close the sale.
  8. Retirement

    Helping Your Clients Face The Financial Reality Of Retirement

    Altering retirement plans is tough, but when the retiree is unprepared, it's very necessary.
  9. Personal Finance

    Private Banking Vs. Wealth Management: Not Quite the Same

    Discover the various ways in which private banking and wealth management services coincide, as well as the significant differences between them.
  10. Tech

    Advisors Need to Talk Less, Ask and Listen More

    Financial advisors spend a lot of time giving their clients advice on how to invest their money. But what they often forget to do is listen.
Frequently Asked Questions
  1. Who are Monsanto's main competitors?

    Learn about Monsanto Company's two main operating divisions and its main competitors within each sector, including The Mosaic ...
  2. What is an assumable mortgage?

    The purchase of a home is a very expensive undertaking and usually requires some form of financing to make the purchase possible. ...
  3. Do I have to complete all exams within a certain period of time to receive the CFA charter?

    According to the CFA Institute, a candidate can take as much time as necessary to complete all three levels of the CFA program.Therefore, ...
  4. What is a reasonable amount of debt?

    It really depends on numerous factors - what stage of life you are at, your spending and saving habits, the stability of ...
Trading Center