By Suzanne Barlyn
Dow Jones Columnist

Some advisors who serve as trustees of client accounts are rethinking that role, concerned about new rules that would make them subject to surprise audits.

Securities and Exchange Commission rules have long deemed registered investment advisors who act as trustees on behalf of clients as having custody of funds, including funds in possession of a qualified custodian such as Fidelity Investments or Charles Schwab & Co. The SEC considers advisors to have custody if they hold client funds either directly or indirectly, or have authority to obtain possession of them.

New SEC custody rules, effective on March 12, will require surprise audits of trustee accounts by an independent public accountant to verify that the assets exist. The audits are to be conducted at the advisors' expense, and about 1,300 registered investment advisors who act as trustees for clients could be affected, according to the Investment Adviser Association, a trade group in Washington, D.C.

Some of those advisors may drop their trustee role as a result-a move that would oblige clients to hire other professionals such as banks, lawyers or specialized trustee services. Advisers say the clients will lose the familiarity that an advisor has with their finances and circumstances. New service providers may not be SEC regulated, they also note.

The SEC recently scrapped a broader proposal that would have required surprise audits for advisors who are deemed to have custody because they deduct fees from client accounts, or authorize fee deductions from accounts held by third-party custodians. A final version of the new custody rules, adopted in December, exempts such advisors. David Tittsworth, executive director of the Investment Adviser Association, called the exemption a "positive development."

Advisors, in many cases, perform the trustee service for free, often for long-established clients, such as the elderly, who say they lack competent family members or friends to act in the role.

"You do it because your clients ask you to-and now, all of a sudden, there's a big business expense," says Helen Modly, an adviser in Middleburg, Va. Some clients want her to act as a trustee, she says. "I'm not willing to go through that," she says.

Audits for trustee advisors, however, may be more benign than they appear: They likely will audit only on those accounts, not the entire practice.

"They're not that big a deal-especially for most smaller advisers," says Matthew Dallett, a securities lawyer in Boston who represents investment managers.