Series 65

Handling Client Funds - Custody

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).


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