The Securities and Exchange Commission (“SEC”) recently published a new
Risk Alert and Investor Bulletin regarding investment advisers’ handling
custody of their clients’ assets.
According to the SEC, there are significant deficiencies in how investments
advisers handle the custody of clients’ assets. Recent examinations of
investment advisers have uncovered custody related issues in one out of three
firms inspected. The SEC highlighted three areas of particular concern:
1) “Failure to recognize that they [investment advisers] have custody, such as
situations where the adviser serves as trustee, is authorized to write or sign
checks for clients, or is authorized to make withdrawals from a client’s
account as part of bill-paying services;”
2) “Failure to meet the custody rule’s surprise examination requirement;” and
3) “Failure to satisfy the custody rule’s qualified custodian requirements, for
instance, by commingling client, proprietary, and employee assets in a single
account, or by lacking a reasonable basis to believe that a qualified custodian
is sending quarterly account statements to the client.”
The investment advisers found to be deficient in the aforementioned areas were
required by the SEC to change their compliance policies and modify their
business practices. These are serious issues and serve to remind investors to
remain vigilant in overseeing their investment accounts.
