A full decade after the financial crisis led to changes in custody rules for financial advisers, the financial planning industry is still pressing regulators for more clarity regarding custody status for RIAs.
"We have strongly advocated for [more clarification] and continue to press the SEC, and we're still hearing from our members about the confusion," said Gail Bernstein, general counsel at the Investment Adviser Association, which has more than 650 advisory firm members that manage more than $25 trillion.
"We want to see something sooner rather than later," Ms. Bernstein said.
The custody rules for registered investment advisers were updated in 2009 in response to the Bernie Madoff Ponzi scheme, in which Mr. Madoff had control of his clients' assets.
The custody rules, which the SEC continues to tweak and clarify, require RIAs with custody status to pay for and subject themselves to surprise annual exams.
For that reason, many RIAs try to avoid custody status. But despite the best efforts of regulators and industry advocates, much of the industry remains confused about what constitutes custody status.
Some of the things that can trigger custody status include forwarding funds to or from a third party on behalf of clients, possessing client passwords and deducting advisory fees.
"Even though it was passed in 2009 and became effective in 2010, here we are still looking for clarification," said Skip Schweiss, managing director of adviser advocacy at TD Ameritrade Institutional.
While there is no formal effort in place, Mr. Schweiss said the major custodians are working with IAA to push the SEC for more clarification on the custody rule.
The SEC, which declined to comment for this article, has placed the issue on its long-term agenda.
In June, the commission added two new questions to its list of frequently asked questions, which now total 68.
The new questions and answers were added in response to the SEC's February 2017 guidance on inadvertent custody, which affects advisers who acquire clients who bring with them custodial agreements.
About a third of RIAs acknowledge custody status for at least some of their clients.
But because of the widespread confusion about what qualifies as custody, the belief is that the number of RIAs with custody is much higher.
In September, New York-based advisory firm Hudson Housing Capital settled charges with the SEC that it did not comply with the custody rule and failed to conduct annual reviews of its compliance policies and procedures.
In July, New York-based advisory firm New Silk Route Advisors agreed to settle charges that the firm violated the custody rule each and every year since it registered with the SEC in 2012.
"The custody rule is not clear to advisers, and that's the issue," said Laura Grossman, assistant general counsel at IAA.
"It is possible that custody is underreported on Form ADVs," she said. "Custody is a very vexing issue for everyone. Historically, there has been a lot of confusion because it's not intuitive."
Amy Lynch, president of Frontline Compliance, describes the custody rule as the regulatory issue that has "probably been given the most clarity over the past five years."
But even though she believes the rule is clearer today than it once was, she recognizes that challenges that still exist.
"I do think it is still confusing for advisers," Ms. Lynch said. "There is a lot of legalese that can be interpreted in different ways, but that's the way it is for any rule."