The SEC Staff had observed failures by investment advisers to realize that they were deemed to have custody in the following 5 circumstances:
- The adviser’s personnel or a related person serve as trustee or have been granted power of attorney for client accounts.
- The adviser (a) provides bill-paying services for clients and, therefore, is authorized to withdraw funds or securities from the client’s account; (b) manages portfolios by directly accessing online accounts using clients’ personal usernames and passwords without restrictions and, therefore, has the ability to withdraw funds and securities from the clients’ accounts; or (c) has signatory and check writing authority for client accounts.
- The adviser received checks made out to clients and failed to return them promptly to the sender.
- The adviser or one of its affiliates serves as the general partner of a limited partnership or holds a comparable position for a different type of pooled investment vehicle (such as by serving as the manager or managing member of a limited liability company or as the trustee of a business trust).
- The adviser has physical possession of client assets, such as securities certificates.