Final answer:
An investment adviser is considered to have taken custody of funds or securities of a customer if they have physical possession of those funds or securities and have control over the customer's account.
Step-by-step explanation:
An investment adviser is considered to have taken custody of funds or securities of a customer if they have physical possession of those funds or securities. This can happen when the adviser has control over the customer's account, such as when they hold the customer's assets in their own name or in an account that is controlled by the adviser. It can also happen when the adviser has the power to transfer the customer's funds or securities to a third party.
For example, if an adviser directly holds a customer's stocks or bonds in their office safe, or if they have the authority to move the funds from the customer's account to another account without the customer's approval, then the adviser is considered to have custody of the funds or securities.
It's important for investment advisers to take custody of customer funds or securities only if they have met certain requirements, such as maintaining the funds or securities in a separate custodial account, providing account statements to customers, and undergoing regular audits to ensure compliance.