Standing Letter of Authorization (SLOA)

How SLOAs work

• The client signs a written authorization naming the destination account(s).
• The adviser can then instruct the custodian to make transfers to those specific accounts without further client signature.
• The custodian relies on the authorization for the limited transfers it covers.

The custody-rule structure

The SEC's no-action letter on third-party SLOAs requires seven specific conditions for the SLOA to not create custody:

1. The client provides written, signed authorization specifying the third party.
2. The authorization names the third party with sufficient detail.
3. The client can change the authorization in writing.
4. The adviser has no authority to designate or change the third party.
5. The custodian sends the client written notice or confirmation of each transfer.
6. The adviser maintains records demonstrating compliance with the conditions.
7. The adviser's authority is limited to the third parties named.

Falling outside any of these conditions can convert the SLOA into custody, triggering surprise-examination requirements.

Common deficiencies

• SLOA naming a class of recipients (e.g., "any of the client's bank accounts") rather than specific third parties.
• Adviser given authority to add new recipients to the SLOA.
• No custodian notification of transfers to the client.
• SLOA records not retained or not connected to the custody-rule analysis on Form ADV.

What examiners look for

SLOAs are reviewed in detail in custody-rule examinations. The examiner will request the firm's list of SLOAs, the client authorizations supporting each, and the custodian-notification arrangements. Form ADV's custody disclosure must reflect the SLOA arrangements accurately — discrepancies are a recurring finding.

How StratiFi thinks about SLOAs

SLOAs are convenient but high-risk instruments. The discipline that holds up under examination is treating each SLOA as a custody-rule structured arrangement — verifying every condition is met, logging the authorization, ensuring custodian notifications, and reconciling against Form ADV. Done well, SLOAs are operational; done badly, they create custody findings.