{"id":10333,"date":"2023-04-04T04:18:18","date_gmt":"2023-04-04T09:18:18","guid":{"rendered":"https:\/\/rixtrema.com\/blog\/?p=10333"},"modified":"2023-04-04T04:27:04","modified_gmt":"2023-04-04T09:27:04","slug":"advisor-custody-expansion","status":"publish","type":"post","link":"https:\/\/rixtrema.com\/blog\/advisor-custody-expansion\/","title":{"rendered":"Advisor Custody Expansion"},"content":{"rendered":"\n<div style=\"height:30px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<ul class=\"wp-block-list\">\n<li><strong><a href=\"#sec-proposes-expanding-regulation\">SEC Proposes Expanding Regulation<\/a><\/strong><\/li>\n\n\n\n<li><strong><a href=\"#new-proposition-details\">New Proposition Details<\/a><\/strong><\/li>\n\n\n\n<li><strong><a href=\"#the-history-of-sec-custody-rules\">The History of SEC Custody Rules<\/a><\/strong><\/li>\n\n\n\n<li><strong><a href=\"#the-biggest-custody-change\">The Biggest Custody Change<\/a><\/strong><\/li>\n<\/ul>\n\n\n\n<div style=\"height:30px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<h2><strong><a id=\"sec-proposes-expanding-regulation\"><\/a>SEC Proposes Expanding Regulation<\/strong><\/h2>\n<p>The <a href=\"https:\/\/rixtrema.com\/blog\/secure-2-0-over-rated-or-game-changing\/\">Securities and Exchange Commission<\/a> is considering expanding regulatory oversight to cover all assets in a client&#8217;s portfolio, not just securities and funds. This means the agency proposes an expansion of custody rules for investment advisors so that they cover more assets and apply to advisors who have authority to trade in their clients\u2019 accounts.<\/p>\n<p>The Securities and Exchange Commission voted, 4-1, in favor of <a href=\"https:\/\/www.sec.gov\/news\/press-release\/2023-30?utm_medium=email&amp;utm_source=govdelivery\">releasing the proposal,<\/a> which for the first time since 2009, would amend regulations that govern advisors who maintain control of their clients\u2019 assets.<\/p>\n<p>\u00a0<\/p>\n<h2><strong><a id=\"new-proposition-details\"><\/a>New Proposition Details<\/strong><\/h2>\n<p>The <a href=\"https:\/\/www.sec.gov\/rules\/proposed\/2023\/ia-6240.pdf\">434-page proposal<\/a> would expand custody obligations beyond securities and funds, which are covered by the current rule, and include all assets in a client\u2019s portfolio. That would sweep in private securities, real estate, derivatives and other assets. It also would expand custody to crypto assets that are not securities.<\/p>\n<p>Under the proposal, an advisor who can make trades on behalf of a client would be deemed to have custody of the client\u2019s assets, according to <a href=\"https:\/\/www.sec.gov\/files\/ia-6240-fact-sheet-0.pdf\">an SEC fact sheet.<\/a> The proposal also would require advisors to enter a written agreement with a qualified custodian to protect customer assets. Qualified custodians include banks, broker-dealers and trust companies, among other institutions.<\/p>\n<p><a href=\"https:\/\/rixtrema.com\/blog\/wp-content\/uploads\/2023\/04\/institutions.jpg\" data-rel=\"lightbox-image-0\" data-rl_title=\"\" data-rl_caption=\"\" title=\"\"><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-10335 alignnone\" src=\"https:\/\/rixtrema.com\/blog\/wp-content\/uploads\/2023\/04\/institutions.jpg\" alt=\"\" width=\"411\" height=\"242\" srcset=\"https:\/\/rixtrema.com\/blog\/wp-content\/uploads\/2023\/04\/institutions.jpg 1079w, https:\/\/rixtrema.com\/blog\/wp-content\/uploads\/2023\/04\/institutions-300x177.jpg 300w, https:\/\/rixtrema.com\/blog\/wp-content\/uploads\/2023\/04\/institutions-1024x604.jpg 1024w, https:\/\/rixtrema.com\/blog\/wp-content\/uploads\/2023\/04\/institutions-768x453.jpg 768w, https:\/\/rixtrema.com\/blog\/wp-content\/uploads\/2023\/04\/institutions-500x295.jpg 500w, https:\/\/rixtrema.com\/blog\/wp-content\/uploads\/2023\/04\/institutions-800x472.jpg 800w\" sizes=\"auto, (max-width: 411px) 100vw, 411px\" \/><\/a><\/p>\n<p>The proposal would amend the custody exception for private assets by requiring advisors to hold those with a qualified custodian unless they can show that it\u2019s not reasonable to do so.<\/p>\n<p>\u00a0<\/p>\n<h2><strong><a id=\"the-history-of-sec-custody-rules\"><\/a>The History of SEC Custody Rules<\/strong><\/h2>\n<p>The agency last changed the custody rule 14 years ago following massive investor fraud perpetrated by Bernie Madoff and others. In 2010, the Dodd-Frank law gave the SEC more latitude to protect client assets following the financial crisis.<\/p>\n<p>SEC Chairman Gary Gensler said the agency was taking advantage of the Dodd-Frank provision to beef up the custody rule.<\/p>\n<p>\u201cI support this proposal because \u2026 it would help ensure that advisors don\u2019t inappropriately use, lose or abuse investors\u2019 assets,\u201d Gensler <a href=\"https:\/\/www.sec.gov\/news\/statement\/gensler-statement-custody-021523?utm_medium=email&amp;utm_source=govdelivery\">said at an SEC open meeting.<\/a><\/p>\n<p>Republican SEC commissioner Hester Peirce was the only agency member to vote against releasing the proposal, expressing misgivings about its scope.<\/p>\n<p>\u201cSignificant aspects of the proposed approach and its implementation timeline raise such great questions and concerns about the rule\u2019s workability and breadth that I can\u2019t support today\u2019s proposal,\u201d <a href=\"https:\/\/www.sec.gov\/news\/statement\/peirce-statement-custody-021523?utm_medium=email&amp;utm_source=govdelivery\">Peirce said at the open meeting.<\/a><\/p>\n<p>She added that she hoped some of her reservations would be addressed during the public comment period, which will be open for 60 days after the proposal is published in the Federal Register.<\/p>\n<p>Peirce noted that she hoped she would be able to support the rule on adoption.<\/p>\n<p>\u00a0<\/p>\n<h2><strong><a id=\"the-biggest-custody-change\"><\/a>The Biggest Custody Change<\/strong><\/h2>\n<p>Perhaps the biggest custody change for advisors centers on discretionary trading. Under the current custody rule, if an advisor places a trade for a client, custody is not triggered.<\/p>\n<p>But under the proposal, custody occurs any time an advisor buys or sells assets on behalf of a client. This would make clear that advisors who trade an investor\u2019s assets cannot circumvent the custody rule and the safeguards it provides.<\/p>\n<p>According to Gail Bernstein, general counsel at the Investment Advisor Association, that new definition of custody represents a sea change for advisors. This organization has been <a href=\"https:\/\/www.investmentnews.com\/even-after-secs-additional-guidance-custody-remains-complicated-rule-for-investment-advisers-74915\">pushing for years<\/a> for reform of the custody rule. They consider that it is really a fundamental departure from where we are today on authorized trading.<\/p>\n<p><a href=\"https:\/\/rixtrema.com\/blog\/wp-content\/uploads\/2023\/04\/authorized-trading.jpg\" data-rel=\"lightbox-image-1\" data-rl_title=\"\" data-rl_caption=\"\" title=\"\"><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-10336 alignnone\" src=\"https:\/\/rixtrema.com\/blog\/wp-content\/uploads\/2023\/04\/authorized-trading.jpg\" alt=\"\" width=\"394\" height=\"262\" srcset=\"https:\/\/rixtrema.com\/blog\/wp-content\/uploads\/2023\/04\/authorized-trading.jpg 1005w, https:\/\/rixtrema.com\/blog\/wp-content\/uploads\/2023\/04\/authorized-trading-300x199.jpg 300w, https:\/\/rixtrema.com\/blog\/wp-content\/uploads\/2023\/04\/authorized-trading-768x510.jpg 768w, https:\/\/rixtrema.com\/blog\/wp-content\/uploads\/2023\/04\/authorized-trading-500x332.jpg 500w, https:\/\/rixtrema.com\/blog\/wp-content\/uploads\/2023\/04\/authorized-trading-800x532.jpg 800w, https:\/\/rixtrema.com\/blog\/wp-content\/uploads\/2023\/04\/authorized-trading-272x182.jpg 272w\" sizes=\"auto, (max-width: 394px) 100vw, 394px\" \/><\/a><\/p>\n<p>\u00a0<\/p>\n<p>The proposal would give smaller advisors more time than bigger firms to implement the reforms if they are ultimately approved by the SEC. The Investment Advisor Association approves of that accommodation but still, the proposal presents a potentially big burden for small advisory shops.<\/p>\n<p>In fact, the flurry of SEC rulemaking proposals is a challenge because many of them overlap. Gail Bernstein considers that it\u2019s got a disproportionate impact on smaller advisors.<\/p>\n<p>What that means in practice is to be discovered yet.<\/p>\n<p>\u00a0<\/p>\n<p><em>RiXtrema offers a wide range of financial tools to our clients. Our <a href=\"https:\/\/rixtrema.com\/pct?source=blog040423\" target=\"_blank\" rel=\"noopener\">Portfolio Crash Testing<\/a> (PCT) tool helps financial advisors determine the best way to adjust clients\u2019 portfolios to reflect their values and needs. You can learn more about our products and services on our website <a href=\"http:\/\/www.rixtrema.com\">www.rixtrema.com<\/a> and sign up for a free trial for any of the tools.<\/em><\/p>\n\n\n\n<div style=\"height:30px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n<div class=\"wp-block-image\">\n<figure class=\"aligncenter size-full\"><a href=\"https:\/\/rixtrema.com\/pct?source=blog040423\" target=\"_blank\" rel=\"noreferrer noopener\"><img loading=\"lazy\" decoding=\"async\" width=\"700\" height=\"129\" src=\"https:\/\/rixtrema.com\/blog\/wp-content\/uploads\/2020\/05\/Portfolio-Crash-Testing-PRO1-min.png\" alt=\"\" class=\"wp-image-6483\" srcset=\"https:\/\/rixtrema.com\/blog\/wp-content\/uploads\/2020\/05\/Portfolio-Crash-Testing-PRO1-min.png 700w, https:\/\/rixtrema.com\/blog\/wp-content\/uploads\/2020\/05\/Portfolio-Crash-Testing-PRO1-min-300x55.png 300w, https:\/\/rixtrema.com\/blog\/wp-content\/uploads\/2020\/05\/Portfolio-Crash-Testing-PRO1-min-500x92.png 500w\" sizes=\"auto, (max-width: 700px) 100vw, 700px\" \/><\/a><\/figure>\n<\/div>\n\n\n<div style=\"height:30px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n","protected":false},"excerpt":{"rendered":"<p>The Securities and Exchange Commission is considering expanding regulatory oversight to cover all assets in a client&#8217;s portfolio, not just securities and funds.<\/p>\n","protected":false},"author":25,"featured_media":10334,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[168],"tags":[],"class_list":["post-10333","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-news"],"jetpack_featured_media_url":"https:\/\/rixtrema.com\/blog\/wp-content\/uploads\/2023\/04\/Advisor-Custody-Expansion.jpg","yoast_head":"<!-- This site is optimized with the Yoast SEO Premium plugin v15.9.1 - 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