Surprise Custody Examination

Print

Rule 206(4)-2 (the “Custody Rule”) of the Investment Advisers Act of 1940 (“Advisers Act”), is one of the most important rules designed to protect advisory clients from the misuse or misappropriation of their funds and securities. Registered Investment Advisers (“RIAs”) that have custody are required to obtain an annual surprise examination by an independent accounting firm. An RIA is deemed to have custody if they directly or indirectly hold client funds or securities, or have authority to obtain possession of them. Examples include:

  • Accounts for which the RIA has the ability (including general power of attorney) to withdraw or have access to client funds or securities;
  • Assets indirectly or directly held by a related party; or
  • Acting as a general partner for a limited partnership (“LP”) or manager of a limited liability company (“LLC”).

Ashland Partners provides surprise custody examinations to RIAs subject to the Custody Rule. Registered with the PCAOB, Ashland Partners is one of the most well-known accounting firms specializing in the investment management industry.

Minimum surprise examination requirements include, but not limited to, the examination of the books and records as they relate to the RIA’s custody and confirmation with the qualified custodians and clients.

Confirmation with qualified custodians:

  • Client funds and securities as of the date of the examination;
  • Client’s funds and securities are held in either a separate account under the client’s name or in accounts under the name of the RIA as agent or trustee for clients; and
  • Reconciliation of confirmations and other information received.

Confirmation with clients:

  • Funds and securities held in the account as of the date of the examination;
  • Contributions and withdrawals of funds and securities to and from the account since the date of the last examination; and
  • Reconciliation of confirmations and other information received.

 

Learn More