The Division of Investment Management of U.S. Securities and Exchange Commission (“SEC”) recently updated “Staff Responses to Questions About the Custody Rule.” (For a link to Staff Responses click here). In the updated responses, the Division provided new guidance concerning a variety of issues related to the custody rule. Two important issues discussed by the SEC clarify an investment adviser’s ability to request checks from a client account and situations where an investment adviser has online access to client pension accounts through the client’s ID number and password.
Q: Does an adviser have custody if it has authority to instruct the qualified custodian that maintains a client’s account to remit the funds or securities from the account to the same client at his or her address of records?
A: We do not interpret the authority to instruct the qualified custodian maintaining a client’s account to remit the funds or securities from the account to the same client at his or her address of record as having custody if (1) the client has granted such authority to the adviser in writing and a copy of that authorization is provided to the qualified custodian, and (2) the adviser has neither the authority to open an account on behalf of the client nor the authority to designate or change the client’s address of record with the qualified custodian. (Posted May 20, 2010).
Q: If an adviser has the ID number and password to a client’s pension fund account to rebalance and adjust investments in the account, does the adviser have custody?
A: The adviser has custody if password access provides the adviser with the ability to withdraw funds or securities or transfer them to an account not in the client’s name at a qualified custodian. (Posted May 20, 2010).
Posted by Bryan Hill