For nearly 80 years, Registered Investment Advisers (RIAs) have been subject to the "custody rule" [rule 206(4)-2] under the Investment Advisers Act of 1940, which protects their clients from the misuse or misappropriation of their clients’ funds and securities. In 2009, the Securities and Exchange Commission (SEC) updated the custody rules to further protect advisory clients. RIAs that have custody are now required to have an annual surprise custody examination. This examination is to be completed by an independent accounting firm that is registered with the Public Company Accounting Oversight Board (PCAOB).
An RIA is considered to have custody if he or she holds, directly or indirectly, client cash or securities, or has any authority to obtain possession of them with regard to advisory services. The SEC gives three examples of when an RIA has custody, and they are as follows:
- Has possession of client funds or securities, even briefly;
- Has the authority to withdraw funds or securities from a client’s account; or,
- Acts in any capacity that gives the adviser legal ownership of, or access to, the client funds or securities
What Does a Custody Examination Entail?
All custody examinations occur on a surprise date each calendar year and include testing of the RIA’s accounting records, as well as confirmation with the custodians on the investment account and the RIA’s clients.
The confirmation process includes confirming investment balances as of the date of the examination, as well as the account activity from January 1 to the date of the examination.
The examination report, signed by the RIA’s independent accountant, is published to the Financial Industry Regulatory Authority’s (FINRA) website under Form ADV-E.
How We Help You Get There
If you are an RIA seeking a custody examination, contact us today at learnmore@BoulayGroup.com or 952-893-9320.
Boulay is a PCAOB registered independent accounting firm. Our team consists of approximately 180 employees in Minneapolis, MN and Naples, FL. We’ve experienced a long history of steady growth and consistently rank in the top of the Minneapolis/St. Paul Business Journal’s Book of Lists for accounting firms.
Our professionals adhere to rigorous quality control policies and have a proud tradition of unqualified opinions in our peer reviews since the inception of the program in 1988. Again, we received an unqualified opinion and a rating of pass, the highest of the three potential opinions designated by the American Institute of Certified Public Accountants.
Boulay is a member of PrimeGlobal, one of the top five largest associations of independent accounting firms in the world. Boulay’s membership offers clients access to trusted people who can help you get your business done around the world — anytime, anywhere, any way.
File Download: Custody Examinations