Charles Schwab Advisor Services announced late Tuesday that following the receipt of a no-action letter from the SEC in February, it is endorsing DTCC’s Alternative Investment Products service to facilitate the custody of alternative investments for advisors.
“We know advisors are increasingly using these alternatives,” said Schwab Executive VP Bernie Clark in an interview Wednesday, “but more will use them; having DTCC step into this void will greatly accelerate” both the custody of alternatives and, perhaps, advisors’ embrace of alternative investments.
As Clark, who heads SAS, explains it, the no-action letter “brings some closure to a long process” that he said began in 2008, when “we recognized this asset class was growing in importance and in complexity,” and DTCC was already working on a pilot program for alternatives custody, modeled on Fund/Serve, its mutual fund settlement service. Since DTCC was “going down the same path, we spent the last two-plus years to get the SEC to give a no-action letter” that would clear AIP for being the platform that would comply with a broker’s possession and control requirements.
DTCC, Clark said, as an expert in settlement procedures was already building the technology, but with the no-action letter, “the solution has now been empowered.”
The benefit to advisors who have clients in alternative investments is clear. Adam Langley (right), chief compliance officer at Aspen Partners, an RIA and a commodity pool operator, said in an interview Wednesday that “at least for us,” the Schwab announcement and the no-action letter “will be hugely important.” He noted that from an administrative standpoint, there are “lots of challenges on holding alternative investments” in a client’s portfolio, mentioning as well that “when someone wants to invest in some type of alternative investment, like a commodity pool or a hedge fund of funds, you’d be amazed at how archaic the process is.”