Comment Letter to SEC RE: Proposed Rule Custody of Funds or Securities of Clients by Investment Advisers


This is a letter to the SEC from our firm commenting on the SEC's proposed rule regarding custody of funds/securities by investment advisers. Back in May, the SEC proposed changes to the "custody rule" which applies to SEC registered advisers (and that likely will be a substantially larger percentage of investment advisers in the future) who have "custody" of client cash/securities. Custody is defined very broadly. Even if the client account is held at a broker in the client's name, if the adviser has the ability to have its fees deducted from the account rather than asking the client to write a check for the fees, the adviser is deemed to have custody for purposes of the rule. (This is the case now, as well as under the proposed rule.) The proposed rule would, among other things, require all registered advisers with custody to be subject to a surprise examination by an independent auditor each year.

If you are interested, the rule proposal can be found at:

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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