Thursday, March 6, 2014

SEC Guidance on Custody for the ADV

Attention SEC Advisor Clients

You should have received an email from the SEC this week describing how to update the ADV1 (Item 9) for custody. They are addressing an area that is often confused. If your firm deducts its fees from your client's accounts, YOU HAVE CUSTODY!

Following is a copy of this letter and AdvisorAssist's correspondence with the SEC can be viewed here. (Yes, we like to get things in writing!)


To: SEC-Registered Investment Advisers,

This email is a reminder that all SEC-registered advisers that have custody of client assets should answer all questions in Item 9 of Part 1A of Form ADV. Each adviser’s answers will vary depending on facts and circumstances.

For example, advisers that have custody solely because they deduct fees from client accounts would respond “no” in Item 9.A. Additionally, these advisers would likely respond “no” in Items 9.B., and 9.D., and they likely would not need to provide information in Items 9.C. or 9.E. However, in Item 9.F., these advisers likely would need to indicate that there is at least one person acting as qualified custodian for their clients in connection with advisory services they provide to clients.

If you have questions, you may reply to this email.

U.S. Securities and Exchange Commission
Division of Investment Management
100 F Street, N.E.
Washington, DC 20549-8549
Phone | 202.551.6999
cid:image005.png@01CE45AA.41A9D890
www.SEC.gov

Guidance provided by staff via the telephone or email is informal and is not binding on the staff or the Commission. When submitting tips, complaints, questions, or other information to the SEC, please read the Privacy Act Statement located at: www.sec.gov/privacy.htm.


What Action(s) Must Your Firm Take?

Custody ONLY due to deduction of fees:
If your firm is registered with the SEC and deducts its advisory fees from client accounts, you have custody. This is an area often confused because an advisor does not need to obtain an audit if there are certain safeguard in place with respect to this arrangement. The requirements include: 1) authorization via written agreement to deduct the fees; 2) client accounts maintained at a "qualified custodian"; and 3) each time you deduct a fee, you send an invoice to the custodian.

Custody due to other access to client accounts:

If your firm has custody of client accounts aside from just fee deduction, certain questions in Item 9 must be a "Yes" response.

Action Steps: AdvisorAssist will assist in making sure all information is accurate based on the unique situation of your firm.

For compliance clients of AdvisorAssist, we will be validating the accuracy of this ADV item. Please share any changes to your business model that might impact this analysis and filing.

Thank you.