Adviser Access to Outside Accounts of Clients Forces SEC Hand

The Securities and Exchange Commission (SEC) is cracking down on advisers who can access their clients’ employer sponsored retirement accounts. Managing director of Graydon Compliance Solutions, Kevin Woodard, has declared that the agency will closely monitor scenarios in which clients have given their advisers usernames and passwords for financial accounts that are not managed by their adviser. At the National Association of Personal Financial Advisors fall conference in Indianapolis, Woodard said, “If you can’t prove you can’t steal from it, you should say you have custody.”

Potential for Adviser Abuse

The multibillion dollar rip off by Bernie Madoff, who maintained control of client usernames and passwords, has the SEC on high alert regarding this issue. In 2013, a special alert was created to raise red flags about custody of assets. During this year’s NAPFA conference, advisers were required to take a one-week exam. An anonymous adviser stated, “They were brutal about the username and password issue.”

Advisers Face SEC Wrath

The obstacle facing advisers is as they obtain client trust, those clients are also turning to them for help on other accounts, in which they don’t control. The clients are willing to give their adviser full access to review them. Matthew Murphy, founder of Murphy Capital Advisors, said “This is a service customers want. If you’re helping them with all of their investments, why can’t you look at their 401(k)?” The SEC is taking measures to prevent the next Madoff scandal from occurring and will be aggressive about failures regarding the custody rule.

The team of investment fraud lawyers at Starr Austen & Miller LLP fights for the protection of investors and handles cases involving securities arbitration misrepresentation, overconcentration, broker fraud, negligence and breach of trust