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How can I be certain that my brokerage account statements are accurate if you are both the custodian of my account and the adviser of my investments?

As an investment adviser registered with the Securities and Exchange Commission, Wealthfront is subject to Rule 206(4)-2 (the “Custody Rule”) of the Investment Advisers Act of 1940. In 2009 the SEC amended the Custody Rule because of several cases involving fraud committed by brokers and investment advisers, most notably Bernie Madoff.

The most relevant change requires registered investment advisers who custody their clients’ assets, like Wealthfront, to hire an independent auditor to verify that their client assets are reconciled to a custodian other than their brokerage subsidiary. In our case that means reconciling with our clearing partner RBC Correspondent Services. The surprise examination by the independent public accountant must be conducted at a time that is chosen by the accountant without prior notice or announcement to us and at an irregular time from year to year.

We have engaged Ernst & Young, a global leader in assurance, tax, transaction and advisory services, to perform this audit. Should Ernst & Young find any material discrepancies during the course of its examination, they would be required to notify the SEC within one business day of the finding.

 

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