Custody Definition and Obligations
Chapters in this video
- 0:00 Why custody is a massive exam topic
- 1:08 Welcome to custody: qualified custodians, quarterly statements, and Form ADV
- 2:46 The surprise examination: independence and 120 days
- 3:34 Pooled investment vehicle audit exception and the 120-day pattern
- 4:10 ADV versus ADV-E: who files what
- 5:02 Minimum financial requirements: custody versus discretion versus prepaid fees
- 6:19 Why a billionaire client never bails out a broke advisor
- 7:13 Rapid-fire exam recap
What this video covers
- What triggers custody status, including why fee deduction from a client account equals custody even when the adviser never holds the full assets
- The four types of qualified custodians and why the custodian must send quarterly statements directly to clients rather than through the adviser
- How the surprise examination works: irregular timing chosen by the certified public accountant (CPA), direct client contact, and the 120-day filing window for Form ADV-E
- The audit exception for pooled investment vehicles: Generally Accepted Accounting Principles (GAAP) audit plus distribution to investors within 120 days of fiscal year-end
- The critical distinction between Form ADV (the adviser's registration and custody disclosure) and Form ADV-E (the surprise examination cover page filed by the CPA)
- The three-tier minimum net worth structure: $35,000 for custody, $10,000 for discretion without custody, and positive net worth for prepaid fees of $500+ more than six months in advance
- Why the adviser's firm net worth matters and the client's net worth never does, no matter how wealthy the client
Read the full lesson, free
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