Insights
Client Alert
Proposed Amendments to SEC Rule Regarding Investment Advisers Custody of Funds or Securities of Clients
August 01, 2002
Lawrence J. Hass and Bethany Cheever
The Securities and Exchange Commission has issued proposed amendments to Rule 206(4)-2 under the Investment Advisers Act of 1940 that reflect modern custodial practices and clarify the circumstances under which an investment adviser is deemed to have custody of client assets. Rule 206(4)-2 requires investment advisers that have custody of client funds or securities to deposit the funds in bank accounts and segregate and hold the securities in a safe place. The SEC believes the proposed amendments will provide greater protection for advisory clients and remove unnecessary regulatory requirements.