You timely filed your Form ADV within 90 days of fiscal year end, but did you properly answer all the questions related to custody? Not surprisingly, the Form remains confusing for many advisers, as does application of the Custody Rule itself. The SEC has issued guidance, letters to the industry, alerts and FAQs, but things continue to remain murky, and not just on the delivery vs. payment concept.
Do you have custody, and are you meeting your obligations if you do? This is not a one-stop analysis. The nuances of the Custody Rule, including its application to your operations, requires you to continuously and regularly assess your business and practices, including client relationships, client onboarding processes, fee calculations, advisory contracts, client-custodial contracts, custodial relationships, client services, affiliate relationships, affiliate services, and more. On top of that, you then must accurately disclose your custodial practices, choosing your words carefully and explaining things in “plain English,” which in and of itself can be problematic.
The SEC may be poised to soon revise the Custody Rule. In the meantime, it continues to expect compliance with the Custody Rule and to issue enforcement orders against registered advisers who fail to adhere to the its mandates. In short, one critical mission of the SEC is the important responsibility of protecting client assets. It is important you understand the application of the Custody Rule and the intricacies of the required controls to your business. This is a current regulatory focus, especially true if you have custody over retail client funds or securities.
Sometimes, with a little assistance, concepts that initially seem complex become simple, and responsibilities that seem overwhelming become routine. Ascendant consultants can help turn the interpretation and implementation of the Custody Rule into simple, organized routine. Additionally, the Ascendant Custody Toolkit provides a step-by-step program to facilitate understanding and application.
“Do not let Custody get you down.” We will first help you assess your authority over and access to client funds and securities, and then discuss required maintenance and protective measures, including if you need a surprise examination, an annual audit, an internal control report, or other controls. If you want to avoid custodial authority, we also can help you strategize on how to change your business practices. Finally, we can help you tailor your written policies and procedures to ensure that you are doing what you say and saying what you do, all of which needs to be in compliance under the watchful eyes of the SEC. You timely filed your Annual Updating Amendment, but, alas, custody concerns continue and a compliance professional’s work never ends.
Post written by Eugenie Warner