We remind our investment adviser clients who are registered or required to register with the U.S. Securities and Exchange Commission pursuant to the Investment Advisers Act of 1940, as amended (the “Advisers Act”) that, pursuant to Rule 206(4)-2(a)(2) under the Advisers Act, they must promptly notify their clients upon the opening of any custodial account with a qualified custodian. Such notice requires that the registered investment adviser notify the client of the custodian’s name and address as well as the manner in which the client’s funds or securities are maintained by the qualified custodian. In addition, if there is any change in the information provided in the notification, the adviser must notify the client of such changes.
If the client has appointed an “independent representative” to receive notices on its behalf, the adviser may deliver notice of new or changed custodial arrangements to the client’s chosen independent representative instead of directly to the client. This notification requirement applies to advisers of private funds, including advisers to hedge funds and private equity funds, regardless of whether the adviser sends out U.S. GAAP compliant annual audited financial statements within 120 days of the end of its fiscal year.
The notice can be provided to investors in any form, such as in a monthly update letter, as long as the notice is sent promptly after entering into the new or changed custodial arrangements. Additionally, to the extent that disclosures contained in Item 9 of Part I of Form ADV with respect to custodial arrangements become inaccurate or incomplete as a result of the new or changed custodial arrangements, the adviser should promptly update Part I of Form ADV.