Custody Rule for Investment Advisers

An adviser has custody when it holds client funds or securities, or has any authority to obtain possession of them. That includes deducting fees from client accounts, acting as general partner of a fund, and some standing letters of authorization.

Rule 206(4)-2 then requires that client assets sit with a qualified custodian, and in many cases an annual surprise examination by an independent accountant. A pooled vehicle can instead distribute audited financial statements to its investors. Advisers often have custody without realising it, which is why it is a recurring exam finding.

4 documents on custody, ordered by legal weight

• Current, conditional · binding law

  Custody Rule

  Rule 206(4)-2 · 17 CFR 275.206(4)-2

• Proposed, not effective · Commission position

  Crypto custody proposal

  Release IA-7023 (proposed) · Proposed 17 CFR 275.223-1

• Current · fact-specific

  Standing letters of authorization

  IAA No-Action Letter (21 February 2017)

• Current · observations, not law

  FY2026 examination priorities

  Examination Priorities FY2026