Surprise Custody Examinations: Strengthening Compliance and Streamlining the Process

Situation

Following the SEC’s Custody Rule 206(4)-2 Surprise Examination, a result of the Bernie Madoff case, investment advisory firms are required to meet custody-related compliance requirements designed to protect client assets and restore investor confidence. The law ensures that advisors with custody of client funds undergo independent surprise custody examinations once a year.

Navigating the nuances of custody-specific compliance often presents unique challenges, requiring expertise to guide financial advisory firms through the intricacies of the rule and simultaneously demonstrate to investors that their assets are being handled with the highest level of integrity.

Choosing the right examination partner is paramount to accomplishing both.

“We were one of the first firms in the Philadelphia region to make this a specialty. Sixteen years later, we are performing these examinations for advisors all over the country,” says Rick Stiebritz, President and Managing Shareholder of Fischer Cunnane.

Approach

Fischer Cunnane, a regional accounting firm based outside Philadelphia, has a specialization in custody examinations and a deep understanding of the rule’s implications.

“We were one of the first firms in the Philadelphia region to make this a specialty. Sixteen years later, we are performing these examinations for advisors all over the country,” says Rick Stiebritz, President and Managing Shareholder of Fischer Cunnane. “Our clients appreciate engaging a firm that will conduct the engagement efficiently with minimal disruption to the advisors and their clients.”

Fischer Cunnane employs a streamlined custody examination process – verifying client assets, evaluating safeguarding procedures, and confirming protocols.  The straightforward approach utilizes sampling, which involves testing only certain transactions, an efficient way to ensure that compliance expectations are met.

“When we encounter transactions that have implications for what constitutes custody, we take a deeper look and act accordingly,” added Stiebritz. “However, in the majority of cases, our custody examinations confirm compliance, while reinforcing the advisory firms’ commitment to protecting client assets.”

Why Fischer Cunnane

“Our goal is to ensure clients stay ahead of evolving requirements and are fully aligned with the protective intent of the rule,” continued Stiebritz.

The value to the advisory firm lies in Fischer Cunnane’s high-touch, senior-level attention – partners with trained eyes and ears who know which questions to ask, and what and where to look for potential issues. “No rookie questions,” concluded Stiebritz.

In the end, the advisory firm can enhance confidence among stakeholders, reduce regulatory risk, and strengthen its ability to demonstrate accountability… without unnecessary costs.