Custody
It’s very common for broker-dealers and investment advisers to take custody, or physical possession, of their clients’ securities and funds. Custody also includes any situation in which an investment adviser is permitted to withdraw funds or securities from the client’s account (held by a qualified custodian). In fact, it’s increasingly rare for customers to hold on to stock and bond certificates, due to the safekeeping that securities firms theoretically provide.
Naturally, custody of client securities and money represents a huge responsibility for firms and a huge extension of trust by the public. To ensure that this trust is not misplaced and the public is protected, there are a number of model rules and standards that should be followed by investment advisers who take custody of client assets:
- 1. Client securities and funds must be appropriately segregated, or set apart from other securities, with proper records documenting how much each client has on deposit.
- 2. Clients must receive regular statements (at least quarterly) of their account values.
- 3. Client accounts and records must be audited at least once per year by an independent third party. The audit must be unannounced to the adviser and the auditor must file their report with the administ
