What is "custody" in the context of investment advisers?

In the context of investment advisers, "custody" specifically refers to the investment adviser's having physical possession of client funds or securities. This means that an adviser has the ability to access, control, or hold a client's money or securities, which imposes a higher level of responsibility and regulatory oversight.

When an investment adviser has custody, they are subject to specific regulations set forth by the SEC and the states, including requirements to maintain accurate records, to safeguard client assets, and to undergo additional compliance procedures. This is designed to protect clients and ensure that their investments are managed properly and ethically.

The other options, while related to financial services, do not define custody accurately. Acting as a financial advisor or providing advice on investments does not involve possession of the assets. Managing trades on behalf of clients involves executing orders but does not equate to holding the assets themselves. Therefore, the correct answer captures the essence of custody as it pertains to the potential risks and responsibilities faced by investment advisers.