SEC Custody Rule Compliance

As an RIA or Independent Broker-Dealer who includes alternative investments in your client’s portfolios, you must ensure that your compliance program meets all of the regulatory requirements of the SEC’s amended Custody Rule 206(4)-2 under the Investment Advisors Act. The Custody Rule is intended to strengthen investor protection, decrease the likelihood of a customer’s assets being misappropriated, lost, misused or subjected to advisors’ financial reverses and increase the chance for early detection of fraudulent activity.

The SEC Custody Rule broadly states… “it is a fraudulent, deceptive or manipulative act” for registered advisors to custody investments unless the advisor fully meets all requirements of the Custody Rule. As your firm continues to expand its interest in alternative assets, it is imperative that you have a custodial solution that complements these asset types and ensures you remain compliant.

Adhering to the Custody Rule is relatively easy if your firm’s offerings are limited to publicly traded securities since your current custodian’s core business is to custody these traditional assets. With alternative investments, however, it is a completely different story. Traditional custodians are mostly unwilling to custody alternative assets, particularly those that are illiquid in nature like Regulation D private placements, private equity, private stock, unregistered non-traded securities, oil & gas partnerships, Delaware Statutory Trusts (DSTs), business development companies (BDCs) and private notes. In the rare cases in which your traditional custodian will custody a select number of alternative products, they often make it cost prohibitive and operationally inefficient, resulting in unnecessary pain points for you and your staff. Our alternative custody services enable you to overcome these hurdles and deliver the highly personalized level of service your clients demand.