Custody
Holding, or having authority to obtain, client funds or securities.
What is Custody?
An adviser has custody if it physically holds client assets, can withdraw them (including deducting its fees directly from client accounts), or acts in a role such as general partner of a fund or trustee that gives it legal access. Advisers with custody must notify the Administrator (on Form ADV), keep assets with a qualified custodian, tell clients where their assets are held, and ensure clients receive account statements at least quarterly. Under NASAA's rule they must also meet the $35,000 minimum net worth.
Custody: a worked example
An adviser authorized to debit its quarterly fee from client accounts has custody, even though a broker holds the assets.
More terms in Ethics & Fiduciary Obligations
Form ADV Part 2 Brochure Delivery
Deliver 48 hours before the contract, or at signing with a 5-business-day exit.
Advisory Contract Requirements
Written, specific about fees, no assignment without consent, no waiver of rights.
Assignment of an Advisory Contract
Transferring a client contract requires the client's consent - including by change of control.
Performance-Based Fees & Qualified Clients
Allowed only for qualified clients: $1.4M with the adviser or $2.7M net worth (from June 29, 2026).
Prepaid Fees & Financial Requirements
Prepayment over $500, six months ahead, triggers net worth and balance sheet rules.
Discretionary Authority
Deciding the asset, the amount, or buy versus sell - without asking first.
Third-Party Trading Authorization
Anyone other than the owner needs written authority to trade the account.
Principal Transactions by Advisers
Selling to or buying from a client for the adviser's own account needs consent each time.