What is the custody rule? 

The custody rule requires an adviser that has custody of client assets to maintain those assets with a "qualified custodian" such as a bank, broker-dealer, or futures commission merchant, and to have a reasonable basis for believing the custodian sends quarterly account statements

When does the Custody Rule apply?

• The adviser have possession of client funds or securities (for any length of time).
• The adviser withdraw funds or securities on behalf of the client.
• The adviser deduct certain fees on behalf of the client.
• The adviser have legal ownership of, or access to, client funds or securities.
• A related person have custody over the client’s funds or securities.

Custody Rule requirements

• Maintain funds with a qualified custodian.
• Keep client funds segregated in separate accounts for each client in the client’s name (or in an account containing only funds of the adviser’s clients under the adviser’s name as agent/trustee).
• Promptly notify the client whenever a new account is opened with a qualified custodian. The notice must be in writing, include the qualified custodian’s name, address and the manner in which funds/securities are maintained.
• Have reasonable belief that the custodian is sending statements to the clients. These account statements must be sent at least quarterly by the qualified custodian directly to the client including the amount of funds and of each security at quarter end as well as a list of all account transactions during the statement period.