IAA calls for segregation of duties at advisory firms

Investment advisory firms should be able to hold custody of client assets so long as advisory functions are separated from custodial functions, according to the Investment Adviser Association.
MAR 10, 2009
By  Bloomberg
Investment advisory firms should be able to hold custody of client assets so long as advisory functions are separated from custodial functions, according to the Investment Adviser Association. It’s a new stance for the IAA of Washington, which recommended back in December — after the alleged massive fraud at New York-based Bernard L. Madoff Investments LLC became public — that advisory firms have independent custodians to help protect client assets. That idea has since been championed by congressional financial service leaders. But in a letter last week to Securities and Exchange Commission Chairman Mary Schapiro, the IAA wrote that advisory firms that separate custodial and advisory duties, and implement other internal controls, should be permitted. “Segregation of duties makes it extremely difficult for any one person to perpetrate and hide a fraud,” said the letter, which was signed by IAA general counsel Karen Barr. The IAA said controls could be modeled on those required under banking regulations. Furthermore, self-custody of assets by advisory firms should only be allowed if there is independent auditing of controls, the letter said. Firms that hold custody of assets and are dually registered as investment advisers and broker-dealers should be examined on a regular basis, and unregistered hedge funds should be required to register, the IAA said.

Latest News

SEC bars ex-broker who sold clients phony private equity fund
SEC bars ex-broker who sold clients phony private equity fund

Rajesh Markan earlier this year pleaded guilty to one count of criminal fraud related to his sale of fake investments to 10 clients totaling $2.9 million.

The key to attracting and retaining the next generation of advisors? Client-focused training
The key to attracting and retaining the next generation of advisors? Client-focused training

From building trust to steering through emotions and responding to client challenges, new advisors need human skills to shape the future of the advice industry.

Chuck Roberts, ex-star at Stifel, barred from the securities industry
Chuck Roberts, ex-star at Stifel, barred from the securities industry

"The outcome is correct, but it's disappointing that FINRA had ample opportunity to investigate the merits of clients' allegations in these claims, including the testimony in the three investor arbitrations with hearings," Jeff Erez, a plaintiff's attorney representing a large portion of the Stifel clients, said.

SEC to weigh ‘innovation exception’ tied to crypto, Atkins says
SEC to weigh ‘innovation exception’ tied to crypto, Atkins says

Chair also praised the passage of stablecoin legislation this week.

Brooklyn-based Maridea snaps up former LPL affiliate to expand in the Midwest
Brooklyn-based Maridea snaps up former LPL affiliate to expand in the Midwest

Maridea Wealth Management's deal in Chicago, Illinois is its first after securing a strategic investment in April.

SPONSORED How advisors can build for high-net-worth complexity

Orion's Tom Wilson on delivering coordinated, high-touch service in a world where returns alone no longer set you apart.

SPONSORED RILAs bring stability, growth during volatile markets

Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today's choppy market waters, says Myles Lambert, Brighthouse Financial.