As we all know by now, investment advisers that send out their own statements to clients are required to place a notice on any such statement “urging” the client to compare the adviser’s information with the statement sent by the client’s qualified custodian. From my conversations with clients and other compliance professionals, the prevailing wisdom is that unless the statement sent by the investment adviser contains much of the same type of information sent by qualified custodian, it is not a “statement” and no notice is required. I have come to find out that this is wrong, wrong, wrong. One of my clients - who always seems to know more than I do - spoke with a representative of the SEC and was told point blank that the SEC intended to use the term “statement” generically and that if the “statement”, “report”, “appraisal” or whatever other term an adviser applied to what they send to clients “contains account balance information” then it is a statement and must have the required notice. Therefore, even if what the adviser sends to clients does not contain transactional information or even holdings information, the SEC would expect to see a version of the following notice:

“Pursuant to recent amendments to Rule 206(4) under the Investment Advisers Act of 1940, the Securities and Exchange Commission now requires us to urge clients to compare the information set forth in this statement with the statements you receive directly from your custodian to ensure that all account transactions are proper.”

This entry was posted on Saturday, February 13th, 2010 at 9:39 am and is filed under Custody. You can follow any responses to this entry through the RSS 2.0 feed. Responses are currently closed, but you can trackback from your own site.