SEC Proposes Easing Custody Burdens for Advisors with Discretionary Trading Authority

The Securities and Exchange Commission (SEC) has released a 760-page proposal aimed at revising various aspects of its custody rule, which requires registered advisors to hold clients' stocks, bonds, and other assets at brokerages or banks for safekeeping.

The main goal behind the SEC's new rule is to provide relief from onerous custody requirements when RIAs exercise their discretionary authority to trade client assets. According to the source, discretionary trading dominates the wealth management industry, accounting for $117.57 trillion of the $128.96 trillion in total assets managed by advisors.

The SEC's new rule would specify that advisors don't come under custody requirements when they use their discretionary authority to trade client assets as long as they meet certain conditions. These conditions include having authority to trade or move assets only into clients' accounts and not into their own or to those of a person related to their firm.

The new rule would also allow advisors to act as self-custodians of cryptocurrencies and other digital assets when they can't find an outside broker-dealer to enlist for that purpose. To do so, advisors would first have to confirm that there are no existing outside custodians that are either able or willing to safeguard the assets.