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May 14, 2009 at 08:00 PM
In a unanimous agreement Thursday, the Securities and Exchange Commission voted to consider proposals that investment advisors who manage or have access to client assets must undergo a surprise exam once a year to make sure those assets exist, according to a Dow Jones Newswires report.
In most cases, advisors do not physically control their clients’ assets, which are maintained with a broker/dealer or bank. Advisers who have custody of customers’ assets either physically control or have the authority to withdraw their clients’ funds. The SEC proposal is open for comment before it becomes a final rule.
According to Dow Jones, if funds are found missing during the process, those accountants must notify the SEC. SEC Chairman Mary Schapiro estimated that part of the proposed rule changes would affect about 9,600 investment advisers who have custody of clients’ assets in one form or another.
The goal behind the proposal is to to promote independent custody of funds to prevent against fraud, writes Sarah Lynch for Dow Jones Newswires. The motivation stems from the Madoff case – Bernard Madoff ran both a broker/dealer and an investment advisory business.
