On June 5, the Securities and Exchange Commission’s Division of Investment Management staff (Staff) updated its “Staff Responses to Questions About the Custody Rule” (Custody Rule FAQs). The Custody Rule FAQs address questions regarding Rule 206(4)-2 of the Investment Advisers Act of 1940, the “Custody Rule.” The update to the Custody Rule FAQs specifically addressed concerns regarding the Staff’s February 2017 Guidance Update titled: “Inadvertent Custody: Advisory Contract Versus Custodial Contract Authority” (Guidance Update). The Guidance Update indicated that investment advisers may inadvertently have custody (Inadvertent Custody) of client assets due to provisions in a separate custodial agreement entered into between its advisory client and a qualified custodian that allow the investment adviser to instruct the custodian to disburse, or transfer, client funds or securities.
Continue Reading SEC Releases Updates to Custody Rule Frequently Asked Questions

Registered investment advisers should take note of recent pronouncements by the staff of the SEC’s Division of Investment Management (the Division) regarding Rule 206(4)-2 (the Custody Rule) of the Investment Advisers Act of 1940. The Division makes clear that many advisers may unwittingly have custody of client assets under the Custody Rule. Investment advisers should