How does Betterment’s data aggregation functionality relate to the SEC’s custody rule?
Advisers may have access to clients’ financial account login and password information for various reasons, including to rebalance the holdings in those accounts, to pay bills for the client, or to facilitate the aggregation of financial information from multiple accounts. Betterment for Advisors provides the ability for advisers to aggregate client financial accounts on the Betterment platform by entering client login and password information via the impersonation function.
Advisers, however, should be aware that possessing client login and password information can, under certain circumstances, be deemed to trigger custody over the assets in those accounts. One way a registered investment adviser could be deemed to have custody of a client’s assets is when the adviser has any authority to obtain possession of those assets. An adviser may decide that it is appropriate to have custody over client assets, but doing so gives rise to additional SEC oversight, including a requirement for an annual surprise audit by an independent accountant at the adviser’s expense.
Advisers wishing to help avoid triggering inadvertent custody by using impersonation to aggregate client accounts might wish to consider asking clients to sign written instructions limiting the adviser’s authority to make withdrawals from the accounts before the client provides the adviser with login and password information. There may be other ways to avoid triggering inadvertent custody as well.
*Note: No information above is, or should be considered, legal advice. If you believe you need legal advice on the subject above, please consult a lawyer.
Can my client add a ‘trusted contact’ for their account?
Your client may want to designate a close friend, family member, or other party 18 years or older who we can contact in the unlikely scenario that we suspect your client is a victim of financial exploitation.
If your client chooses to designate a trusted contact, they authorize Betterment Securities to contact the individual to disclose information about their account to address possible financial exploitation, to confirm the specifics of their contact information, health status, or identity of any legal guardian, executor, trustee or holder of a power of attorney, or as otherwise permitted by FINRA Rules 2165 & 4512.
Your clients can add this information by clicking on their name in the top right hand corner of their account and selecting “Settings” from the drop down. Once on this page, they will be able to scroll down to the bottom of the Trusted Contacts section and input the information.
Betterment Securities, as a FINRA registered broker-dealer, is required to provide customers this opportunity”