The Importance of Surprise Custody Exams

The Importance of Klingenstein Fields Advisors’ Custody Surprise Examinations

Published: January 10, 2024

Klingenstein Fields Advisors (KF Advisors) takes pride in being an independently owned Securities and Exchange Commission (SEC) registered investment adviser (RIA) operating under the stringent rules of the Investment Advisers Act of 1940 (“the Advisers Act”) and the guidance of the SEC. We are committed to our fundamental obligation of undivided loyalty and good faith to our clients and to providing investment advice in our clients’ best interests.

We believe an important element of fulfilling our duty as a fiduciary is to provide our clients with timely and accurate reporting on their assets. Periodic statements from KF Advisors, that we urge you to compare to those provided by your qualified custodian, help to keep you informed. As a client, you also have daily access to your account information, as well as to your quarterly statements, via your custodian website and our client portal.

As part of a system of checks and balances put in place to protect your wealth from theft, loss, misuse and/or misappropriation, rule 206(4)-2, the “custody rule” under the Advisers Act, requires that, among other things, annual surprise examinations of RIAs deemed to have custody of client assets be conducted by an independent public accountant. These examinations verify the existence of funds and securities, proper ownership records, and the alignment of holding amounts at the custodian with our own records, as well as assess compliance with other elements of the “custody rule” and related requirements under rule 204-2, the Advisers Act “recordkeeping rule”. This stringent oversight enhances the security and integrity of your funds and client records.

We take our responsibility and duties as a fiduciary with the utmost seriousness and willingly engage in measures aimed at protecting your assets. In addition, in adherence with SEC requirements, we undergo surprise custody examinations each year. During these examinations, our outside auditors independently select specific clients records and a specific point in time for examination. If selected, the independent audit firm contacts you directly to verify that our financial records and reports accurately reflect your funds and securities, including, for example, your contributions and withdrawals during the examination period. To facilitate your review and response, we provide the auditors with statements to include in their communications with you. While this demands considerable effort on our part, we are committed to ensuring a seamless process for your response and try to minimize any inconvenience to you.

We truly appreciate your cooperation and your trust in us. We look forward to helping you and your family achieve their financial goals now and in the future. As always, we are here to answer any question or address any concerns you may have at 212.492.7000 or

Important Disclosures

This material is provided for informational or educational purposes only and should not be construed as investment, accounting, tax or legal advice. Always consult a financial, tax and/or legal professional regarding your specific situation. This communication is not intended as a recommendation or as investment advice of any kind. It is not provided in a fiduciary capacity and may not be relied upon for or in connection with the making of investment decisions. Nothing herein constitutes or should be construed as an offering of advisory services or an offer to sell or a solicitation to buy any securities or a recommendation to invest in any specific investment strategy. Investing involves risk, including the possible loss of principal. Past performance is not indicative of future returns. The views expressed herein are as of a particular point in time and are subject to change without notice. The information and opinions presented herein are general in nature and have been obtained from, or are based on, sources believed by Klingenstein Fields Advisors (“KF Advisors’) to be reliable, but KF Advisors makes no representation as to their accuracy or completeness. Although the information provided is carefully reviewed, KF Advisors cannot be held responsible for any direct or incidental loss resulting from applying any of the information provided. KF Advisors represents two investment advisers registered with the Securities and Exchange Commission: Klingenstein, Fields & Co., L.P. and KF Group, LP. If you are a KF Advisors client, please remember that it remains your responsibility to advise KF Advisors, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services.