The Custody Rule, Rule 206(4)-2 under the Advisers Act, was amended effective March 12, 2010. The amendments to the rule require all federally registered investment advisers (or those investment advisers required to be federally registered) with custody of client assets to, among other items, (i) maintain client funds and securities with a qualified custodian in a separate account for each client under that client’s name, or in an account that contains only client funds and securities with the adviser listed as agent or trustee for the clients; (ii) have a reasonable basis, formed after "due inquiry," for believing that the qualified custodian holding client funds or securities sends an account statement to each advisory client at least quarterly (advisers may no longer, as an alternative to having the qualified custodian deliver these accounts statements, send account statements directly to clients if they undergo a surprise examination at least annually); (iii) provide a notice to clients upon opening any new custodial account on behalf of the client (or changes to any such account) and include a legend in such notice urging the clients to compare custodial account statements with any statements received from the adviser (if the adviser elects to send any such statements directly); and (iv) undergo an annual surprise examination conducted by an independent public accountant pursuant to a written agreement. In order for federally registered investment advisers that advise pooled investment vehicles to avoid both the quarterly statements and surprise examination requirements, audited financial statements prepared in accordance with GAAP by an independent public accountant registered with the Public Company Accounting Oversight Board must be sent to the pool or, in certain cases, investors in such pooled investment vehicles within one hundred and twenty (120) days after the end of the pooled vehicle’s fiscal year (one hundred and eighty (180) days for funds-of-funds). Please contact us if you have any questions about what your practice should be with respect to the Custody Rule.