The SEC Division of Investment Management granted no-action relief to the Investment Adviser Association, on behalf of investment advisers generally, concerning the annual "irregular" (i.e., surprise) examination by an independent public accountant that a registered investment adviser with custody of client funds must undergo, pursuant to Rule 206(4)-2(a)(4) of the Advisers Act. The relief provides that the SEC will not recommend enforcement if an investment adviser does not arrange a surprise examination in which (i) it acts as a sub-adviser in an investment advisory program for which a related person or qualified custodian is the primary adviser (or an affiliate of the primary adviser), (ii) the primary adviser is responsible for complying with Rule 206(4)-2, and (iii) a number of other conditions are met, including that the subadviser does not itself have custody of client assets.
(The Investment Adviser Association is a nonprofit organization representing the interests of SEC-registered investment advisers.)
Commentary
Regulators should be commended for granting this kind of common-sense relief. It will help the advisers to whom it applies avoid duplicative surprise examination expenses.
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