How does AdvicePay avoid custody?
Ya-Hoo! A way to bill your clients without triggering custody!?
In a SEC's Risk Alert, the NEP Staff noted that having online access to a client’s accounts can trigger custody, if the online access includes the ability to withdraw funds or transfer them to another account.
Unlike other payment processors, AdvicePay does not give an advisor the ability to withdraw client funds without the clients approval. When an advisor requests payment from a client, the client approves or denies the payment request. If it is a subscription payment, the client only has to approve the request once and the remaining payments are automatically billed, however, if an advisor makes changes to the subscription the client must approve the change. This is different than other payment processors where the advisor doesn't need client approval to withdraw their funds.
Furthermore, advisors never see clients' banking or credit card information because clients enter that themselves on their client portal.
In the instance that a firm is found to have custody of client assets, then the RIA is subject to additional requirements to ensure proper management of client funds, like a surprise annual audit. AdvicePay avoids custody of client assets through mandatory client approval of payments and clients entering their own payment information.
To read more on custody, check out Michael Kitces, one of AdvicePay co-founders, at Nerds Eye View: https://www.kitces.com/blog/having-client-passwords-and-other-ways-an-ria-may-fail-to-avoid-the-sec-custody-rule/