Investment advisers frequently have custody, either directly or indirectly, of their clients assets. Obviously, custody of another’s assets can lead to infidelity. In the word’s of the satirist Juvenal, the question necessarily becomes “sed quis custodiet ipsos custodes? (but who shall guard the guards?).

In the case of registered investment advisers, securities regulators are the guards. Unfortunately, these guards have not always been effective.

In 2000, the North American Securities Administrators Association (NASAA) adopted a model custody rule. NASAA amended the rule in 2004 and 2005. The current version of NASAA’s model rule can be read here.