-By Baker Tilly

COVID-19 has made an impact on all of our lives, and has changed what we have viewed as “the normal.” This includes our daily routines, where we spend our workdays and how businesses operate daily. The impact of working from home has been significantly assessed over the past few weeks. Some studies have shown that telecommuters are working more days per month than a standard office-based employee; however, some work-from-home inefficiencies pose challenges related to physical documentation.

While COVID-19 has created a new challenging work environment, regulatory requirements remain largely unchanged, and investment advisers must ensure they maintain compliance. A critical component of this is compliance with Rule 206(4)-2 (the Custody Rule), which was enacted to provide protection for client funds and securities against possible misappropriation.

Under the Custody Rule, an adviser must comply with the following key requirements in maintaining custody of client assets:

  1. A qualified custodian must maintain the funds and securities in a separate account under the client’s name, or in accounts that contain only the client’s funds and securities under the name of the investor adviser as an agent or trustee of the client.
  2. Clients are promptly notified in writing of the qualified custodian designated when an account is opened on their behalf and any changes are made to the above-referenced items.
  3. There is a reasonable basis for believing that the qualified custodian provides account statements (at least on a quarterly basis) to each of its clients.
  4. An arrangement must be made with an independent public accountant to perform an annual surprise examination to assess noncompliance with the above items.

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