Rule 206(4)-2, the "custody rule", under the Investment Advisers Act of 1940, requires registered investment advisers that have custody of client funds or securities to maintain those assets with a qualified custodian. The SEC’s intent was to design requirements to enhance protections for advisor-client assets while reducing the burdens on advisors that have custody of client assets.
Custody rule's key requirements include:
Use of a "qualified custodian" to hold client assets
Notices to clients detailing how their assets are being held
Account statements for clients detailing their holdings
The audit approach for advisers of pooled investment vehicles
The rule's objective is to increase protection for investors.