SEC Division of Investment Management staff letter: Investment Company Institute

Douglas J. Scheidt
Associate Director and Chief Counsel
Division of Investment Management
U.S. Securities and Exchange Commission
100 F Street NE
Washington, DC 20549
Re: NoAction Relief for Custodial
Arrangements of Certain Municipal
Fund Securities
Dear Mr. Scheidt:
The Investment Company Institute1 is seeking assurance from the staff of the Securities and Exchange Commission (“Commission”) that it will not recommend enforcementaction to the Commission pursuant to Rule 206(4)2 under the Investment Advisers Act of 1940 for custodial arrangements involving 529 plans as described in this letter. More specifically, we request that, for purposes of this rule, advisers be permitted to treata 529 plan trustas a pooled investment vehicle under subdivision (b)(4) of the rule. As discussed in more detail below, we are concerned that, without such relief, recently adopted amendments to Rule 206(4)2 will result in unnecessary and considerable expense to existing and longstanding custodialarrangements for certain 529 plans without providing any corresponding increase in the safety and security of investors’ contributions to these plans. This is because, as revised, the rule now imputes custody of the 529 plan’s assets to certain mutual fund investmentadvisers acting as a plan’s program manager. This, in turn, requires the adviser to undergo annually a surprise examination by an independent public accountant, which does not appear necessary to protect the investors’assets, as discussed in more detail below. 1 The Investment Company Institute is the national association of U.S. investment companies, including mutual funds, closedend funds, exchangetraded funds (ETFs), and unit investment trusts (UITs). ICI seeks to encourage adherence to high ethical standards, promote public understanding, and otherwise advance the interests of funds, their shareholders, directors, and advisers. Members of ICI manage total assets of $12.9 trillion and serve over 90 million shareholders.