By Carrie Zippi, CPA
There continues to be limited guidance publicly, although the Securities and Exchange Commission (“SEC”) staff has raised questions during recent examinations about advisers having custody as a result of the money movement authorization level provided by clients. The SEC has focused on an arrangement where the adviser is authorized or permitted to withdraw client funds or securities upon the adviser’s instructions to the custodian.
The SEC has taken the position in recent examinations that an adviser having the ability to move assets from an account at one custodian to an account at another custodian, without receiving specific account information, has custody, even if the accounts have the same account holder. This is an ability often conferred on advisers through standing letters of authorization, and language common to custodian contracts.
So what does this mean? While this is an industry-wide issue that is currently being discussed, it is important to note that the SEC has not formally addressed this issue publicly. Until they do so, advisers should review their existing authorizations, the Custody Rule requirements, and relevant guidance to determine if any changes should be made to meet their compliance obligations.
Ashland Partners & Company LLP conducts annual surprise custody examinations. However, firms should consult with their legal or compliance professionals to determine if there are custody issues to be addressed before requesting services.