Time Is Running Out on Custody Decisions: What will you do?

By Cynthia Stephens on Tuesday, October 5th, 2010

I believe there’s truth in the old adage information is power .   We can certainly make smarter decisions when shopping for a new car, a mortgage, or a major household purchase with the bounty of online information. When it comes to critical issues affecting your practice, like custody, how do we become better educated? Time is running out on deciding whether or not you want to have custody of client funds or securities.

As a marketer with years of experience in research, I’m a strong believer in market research to become better educated. In that spirit, I asked advisors in an online survey last month how they are navigating the changes in Washington and Wall Street. One thing is clear, there is still a lot of uncertainty about the changes and what they mean for running a practice. About one fourth of survey takers said they are still confused about the custody rule, 204(6)-2. 

I know that many advisors are taking a conservative approach with regard to having custody of client funds and are going forward with the audit process. If you are in the middle of that decision-making process, here are a few things I learned from the survey that may help you:

  • While many of the costs of regulatory compliance are difficult to quantify, one third of the advisors I surveyed said the mandatory audit, one of most talked-about requirements of the rule 206(4)-2, cost their firm in excess of $20,000.
  • Of those that have already completed an audit, 51 percent said it took more than five days.
  • 26% plan to pass along audit costs to their clients
  • One quarter of advisors said they are likely to eliminate custody of client’s funds and/or securities as a result of amendments to the custody rule. Presumably these advisors have weighed their options and don’t want to accept custody and all the requirements that go along with it.

How each of you respond to regulatory and legislative developments will be based on your individual outlook and the firm’s philosophy – are you a true wealth advisor or an asset manager? What do you aspire to be? In the end, I believe that true wealth advisors will ultimately flourish because they are determined to provide holistic advice and, by doing so, grow the business, regardless of the regulatory climate.

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