SEC amends the Advisers Act custody rule

Purpose – The purpose of this paper is to explain amendments to the Investment Advisers Act custody rule, that recently became effective, which are intended to provide advisory clients with additional protections when a registered investment adviser has access to client assets. Design/methodology/approach – The paper explains changes to the custody rule related to the definition of custody, delivery of account statements, surprise examinations, exemptions related to pooled investment vehicles, required internal control reports for advisers who maintain client assets themselves, the surprise examination requirement for privately offered securities, and amendments to Form ADV. It also explains effective and compliance dates. Findings – Advisers should consider how to revise and tailor their written policies and procedures relating to custody; whether to continue the use of affiliated custodians; how to allocate the expenses for compliance with the new requirements, including accountants' fees for surprise examinations, internal control reports and liquidation audits; and whether to amend fund disclosure documents or separate account agreements to address expense allocation or other issues arising as a result of the new requirements. Originality/value – The paper provides practical guidance from experienced securities lawyers.