Lifestyle

Compliance Corner: “The Other Realm of Custody”

In the unsexy world of compliance, certain buzzwords send us nerdy types into high alert. In the last few years, that word has been “custody.” This is not the mainstream definition of having responsibility or protective care of a family member, a pet or a prisoner. The meaning in the compliance world has more to do with having access to assets and the ability to move assets. As an investment advisory firm registered with the Securities and Exchange Commission (SEC), Altavista complies with heavy regulatory oversight and guidelines in order to prevent any fraudulent activity around our clients’ assets. We do not hold any assets at our firm but utilize institutional brokerage custodians such as Charles Schwab and TD Ameritrade, also heavily regulated but by Financial Industry Regulatory Authority (FINRA), to hold and account for our clients’ supervised holdings. Both the custodian and Altavista are required to track these holdings, report upon them with statements of holdings and activities, and comply with stringent processes to confirm any activity in an account is authorized by the client.

Because Altavista advisors and client service specialists serve as a liaison between our clients and their custodians, we receive requests from clients to have funds or assets moved from a client’s account to another of their accounts or an outside recipient. These are two different kinds of requests. In the brokerage world, moving funds from one of a client’s account to another of their accounts is called a first-party money movement because it is going from one account in the client’s name (or joint name, trust name, etc.) to another of the client’s accounts with the exact same name and social security number. The other type of money movement is when funds are transferred to an outside recipient whether to pay bills, or gift money to a family member or non-profit organization. When funds are transferred to an outside party, this is referred to as a third-party money movement. Either of these types of transfers may be recurring activities and the custodians will recognize a Standing Letter of Authorization (SLOA) with detailed instructions signed by the client to facilitate these requests with certain requirements. SLOAs for first-party money movements are cleaner since the request is specific to accounts both registered in the client’s name. The third-party transfers are the transactions which can trigger custody (defined as access and ability to move assets) if certain steps are not followed.

Over the years, the SEC has amended the Custody Rule (originating in the Investment Advisers Act of 1940) and released additional guidance on how it is enforced. In 2017, the SEC provided additional guidance on how the Custody Rule applies to third-party money movement authority. Without getting too deep in the regulatory weeds, the overall effect of the latest SEC guidance requires much stricter processes around money movement from clients’ accounts. In order to protect our clients’ assets, custodians (Schwab, TD Ameritrade) are verifying written transfer requests by matching signatures on written requests and/or requiring verbal verification from the client. Because we are living in an electronic communication world where emails and mobile phones can be hacked and clients email correspondence impersonated, Altavista will no longer accept an email or a voice mail to begin a third-party movement of money request without calling the client to confirm the request is originated by the client. We realize this may seem redundant, however, we simply want to confirm nothing fraudulent occurs with a client’s account. We appreciate the trust our clients have placed in us and take our responsibility to protect their assets seriously.

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Altavista Wealth Management, Inc. (“Altavista”), or any non-investment related content, made reference to directly or indirectly in this newsletter will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this article serves as the receipt of, or as a substitute for, personalized investment advice from Altavista. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Altavista is neither a law firm nor a certified public accounting firm and no portion of the article content should be construed as legal or accounting advice. A copy of Altavista’s current written disclosure Brochure discussing our advisory services and fees is available upon request.

Please Note: If you are an Altavista client, please remember to contact Altavista, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. Altavista shall continue to rely on the accuracy of information that you have provided.