GAO Study Examines Costs of SEC Rules Governing Custody of Client Assets on Investment Advisers (with Lofchie Comment)

The GAO examined the costs of the rule requiring investment advisers that have custody of client assets to submit to annual surprise examinations by public accountants. In addition, the study found that the SEC rule requiring a qualified custodian who is a related person to obtain an internal control report also produced varied costs across custodians based on their size and services. Finally, the GAO examined the exception which the SEC offers from surprise examinations for investment advisers deemed to be "operationally independent" from their clients, and the associated costs with that exception.

Lofchie Comment: The GAO Report really does focus on analyzing the costs of the surprise examination rule and does not attempt to analyze whether the rule's benefits exceed its costs. That said, the Report includes some discussion from the SEC to the effect that the rule has been successful in detecting custody violations by investment advisers and will likely deter fraud.

See: Full GAO Report.
See also: GAO Report Highlights.