An investment adviser may act as a custodian for a client’s securities if
I. the Administrator of the state doesn’t have a rule prohibiting custodial arrangements.
II. he informs the state Administrator in writing that he will be acting as a custodian for the client.
III. he arranges to pay an independent certified public accountant to perform an unannounced audit of his books each year so that the accountant can report his findings to the state Administrator.
Explanation
Answer: D - Selections I, II, and III are true statements. In order for an investment adviser to act as a custodian for a client’s securities, he must first make certain that the Administrator of the state in which he’s registered does not prohibit it. Then he must inform the Administrator in writing that he will be acting as a custodian for the client, and he has to pay for an independent CPA to audit his books once a year to make certain that everything is copasetic, upon which the CPA reports his findings to the state Administrator. There are also other requirements that must be met.
