Alert September 11, 2012

No-Action Relief under Advisers Act Custody Rule for 529 Plan Program Managers

The staff of the SEC’s Division of Investment Management (the “Staff”) granted no-action relief to allow an investment adviser to comply with the Rule 206(4)-2 (the “Custody Rule”) under the Investment Advisers Act of 1940 (the “Advisers Act”) by treating a state-created 529 plan trust that is a college savings plan  (a “529 Plan”) for which the adviser serves as program manager, as a “pooled investment vehicle” for purposes of the Rule.  An adviser serving as program manager does not need to comply with the independent verification requirements that would otherwise apply under the Custody Rule with respect to a 529 Plan if various conditions detailed in the relief are met, including that (a) the 529 Plan’s audited annual financial statements are (i) provided to the state agency or instrumentality responsible for oversight of the 529 Plan within 120 days of the end of the 529 Plan’s fiscal year and (ii) made available to all existing 529 Plan accountholders via the 529 Plan’s website; and (b) 529 Plan accountholders receive written notification of the availability of the financial statements no later than the delivery of the account holders’ next regularly scheduled quarterly account statements.