|Compliance Exam Materials
A. An adviser has custody when it has possession of
client funds or securities, even briefly.
- Excluded is an inadvertent receipt by the
adviser of client funds or securities, so long as
the adviser returns them to the sender within three
business days of receiving them.
- The rule does not permit advisers to forward
clients’ funds and securities without having
“custody,” although advisers may assist clients in
- An adviser’s possession of a check drawn by the
client and made payable to a third party is not
possession of client funds for purposes of the
B. An adviser has custody if it has the authority to
withdraw funds or securities from a client’s account.
- An adviser with power of attorney to sign checks
on a client’s behalf, to withdraw funds or
securities from a client’s account, or to dispose of
client funds or securities for any purpose other
than authorized trading has access to the client’s
- An adviser authorized to deduct advisory fess or
other expenses directly from a client’s account has
access to, and therefore has custody of, the client
funds and securities in that account. (In reliance
on no-action letters issued by the SEC, advisers
that have custody only because they deduct fees
should answer “no” to Item 9 of Part 1A of Form
C. An adviser has custody if it acts in any capacity that
gives the adviser legal ownership of, or access to, the
client funds or securities.
D. Advisers with custody of client funds and securities
are required to maintain the funds and securities with
qualified custodians including, but, limited to:
- banks and savings associations,
- registered broker-dealers,
- registered futures commission merchants,
- affiliates that are qualified custodians.