The Colorado Division of Securities (“Division”) is issuing this Adviser Alert to provide regulatory guidance to investment advisers who utilized TD Ameritrade (TDA) to custody clients’ assets. The conversion of TDA accounts to Charles Schwab & CO., Inc. (SCH) is scheduled to be completed by September 5, 2023, at which time TD Ameritrade will cease to exist. Advisers who utilized TDA as their custodian need to decide immediately on whether to convert accounts to SCH or select an alternate custodian.
In the face of this change, the Division is alerting advisers to review and promptly revise all aspects of their businesses that may be impacted by the TDA transition. Although not an exhaustive regulatory list, the Division is providing guidance below.
Compliance Guidelines:
Advisers must maintain detailed records of all actions taken during this transition and are expected to keep comprehensive records. Advisers impacted by this transition should promptly review and ensure compliance with the following requirements: - Re-execute Contracts: For advisers who name TDA and list individual TDA account numbers in their contracts, it is required to re-execute the contracts or sign an addendum to the contract with client and firm signatures to reflect the new SCH (or other) account numbers and custodian name. This applies exclusively to those advisers who have specified the TDA name and account numbers within contracts.
- Revise Invoices: Ensure that all invoices reflect the new SCH (or other) account numbers and verify that balances are accurate during the transition period. This is crucial to prevent any discrepancies or issues with fee billing and provide clients with precise information.
- Revise Policies and Procedures: Review and update all policies and procedures that reference TDA as the custodian. This includes all back-office processes including wire accounts, fee billing and direct deduction procedures, brokerage practices, performance reporting, business continuity plans, privacy policy, etc. Update references to TDA to accurately reflect the new custodian and their practices.
- Revise and Deliver Firm Brochure (ADV Part 2A): Verify that the custodian information under Item 12 of the Firm Brochure has been updated. Additionally, review all custodial services and fees (i.e., brokerage commissions, platform fees, 12b-1 fees, etc.) disclosed under Item 4 and Item 5 and make any necessary updates. Any changes within the ADV Part 2A should be documented under Item 2 'Material Changes'. An updated Firm Brochure must be delivered to clients within 30 days of the transition.
- ADV Filing: Update the Firm’s ADV filing with the Central Registration Depository (CRD) system to reflect the change of custodian under Item 5. This ensures that regulatory filings accurately represent the current custodial relationship.
- Revise Marketing/Advertising: Review and update all marketing materials, including websites and social media accounts, to reflect the new custodial relationship. Ensure that all disclosures, services, and fees are accurately updated to reflect the new custodian’s information whether it is Charles Schwab & CO., Inc. or another firm.
- Ensure Accurate Performance Reporting: During the transition period, it is essential to ensure that balances, account numbers, and performance history are accurate. This guarantees the integrity of client reporting and performance measurement. Advisers are responsible to review this information, regardless of vendors hired to facilitate this service.
- Communicate with Clients on Changes: While SCH and TDA have been communicating with advisers and clients, advisers need to play a proactive role in conveying these changes and have a responsibility to ensure a seamless transition. This includes information on how clients can log into their accounts, if and how their relationship with the adviser will change, and any applicable changes in services, fees or commissions, and reporting. Retain all communications with clients as part of the Firm’s books and records.
- Update Vendor Processes: Advisers who employ vendors for billing, portfolio management systems, and performance reporting need to ensure that these vendors have been granted access to the new SCH (or other) platforms. Review the information provided by these vendors for accuracy, including fees, balances, and portfolio values to ensure seamless operations.
- Retain Books and Records: Remember that as an adviser, you are responsible for retaining all TDA books and records. Although access to these records will still be available, some records may have a limited retention period. Ensure you comply with the CO record retention requirements.
It is critical that affected advisers promptly make the revisions to their businesses to ensure a careful, transparent and thorough transition for their clients and to ensure compliance with the Colorado Securities Act and rules.
This alert along with other investment adviser compliance resources can be found on the Division’s website at IA Guides and Resources.
If you have any questions or need to contact the Division, our phone number is 303-894-2320 or you can email us at dora_SecuritiesWebsite@state.co.us. About DORA and the Division of Securities DORA is the state's umbrella regulatory agency, charged with managing licensing and registration for multiple professions and businesses, implementing balanced regulation for Colorado industries, and protecting consumers. Our nearly 600 employees are dedicated to preserving the integrity of the marketplace and promoting a fair and competitive business environment throughout Colorado. The Division of Securities exists to protect investors and maintain confidence in the securities market, while avoiding unreasonable burdens on the marketplace by licensing securities professionals, enforcing securities law violations, and helping Coloradans become more informed investors. |
