The Securities and Exchange Commission estimates that registered investment advisers using its proposed crypto self-custody fallback would face recurring annual costs of $433,833 each, according to the economic analysis accompanying the proposal the agency approved on Oct. 1.

The proposal would let advisers hold covered client crypto assets directly when an eligible custodian is unavailable for a specific asset, subject to a set of operational safeguards. The SEC's own analysis concedes the consequence: the expense of safeguarding assets and arranging independent oversight may lead smaller firms to decline to offer the service at all, while larger advisers — with the resources to absorb the costs and share them across a wider client base — could use the pathway to broaden their offerings.

Table 8 of the proposal's economic analysis models the annual burden. The largest component is an independent internal control report, which the SEC prices at an average of $376,000 per year, adjusted for inflation from a prior Paperwork Reduction Act estimate and rounded to the nearest $1,000. Recurring internal compliance work adds $57,833 annually, plus a one-time internal compliance cost of $173,499. All figures are in 2026 dollars.

The internal estimate assumes 300 initial hours and 100 recurring annual hours at $578.33 per hour. It covers information provision, communications and an agreement between adviser and client to treat the asset as a financial asset under applicable state law.

The subtotal understates the true operating cost. It excludes technology, software, hardware and associated systems and processes, which the SEC expects to be "economically high." Recordkeeping and disclosure burdens sit in separate tables. The agency assumes roughly 823 advisers — 5% of the 16,442 registered advisers — would use the fallback for burden purposes, while cautioning actual uptake may be lower.

Scale determines access

The economic analysis explicitly anticipates that smaller advisers may elect against self-custody while larger ones absorb the safeguards. A fixed cost weighs more heavily on a small pool of covered assets than a large one, and firms could allocate expenses across their wider businesses rather than charging only the clients using the fallback. The SEC expects many direct costs to be passed to clients through fees or expenses.

The accountant market adds another variable. The SEC warns that demand for specialists able to assess crypto controls could make services harder to obtain, particularly for smaller advisers with less bargaining power. An adviser with a focused crypto business may already own the infrastructure another firm would need to acquire.

For clients, the practical consequence is uneven access: an asset might become available through an adviser with sufficient custody resources while remaining outside another adviser's offering.

A pathway that can expire

The fallback is asset-specific and conditional. An adviser must have a written reasonable basis, after due inquiry, that no qualified custodian would maintain each asset — determined before taking custody and at least quarterly afterward. Custodian pricing cannot drive that determination; a firm cannot choose the fallback simply because it looks cheaper.

Once an adviser learns a qualified custodian has become available, it must move the asset to that custodian as soon as reasonably practicable, even between quarterly reviews. The proposal sets no single transfer deadline. If no client crypto assets remain in self-custody by the report's due date, the control report is not required — but a firm might still incur setup costs for an arrangement that later expires, leaving only a narrow set of unsupported assets across which to spread the remaining expense.

What the costs buy

SEC Commissioner Mark Uyeda's statement details the proposed conditions: safeguarding expertise, cybersecurity protections, annual reviews, reporting and client disclosures. The adviser would need asset-specific key management systems, authorization by two or more designated people, and segregation of each client's assets. The first independent control report would come due within six months of taking self-custody and at least once each calendar year thereafter, assessing control design, implementation and effectiveness, including reconciliation to the underlying crypto network.

SEC Commissioner Hester Peirce distinguished adviser "self-custody" from investors holding their own assets: an intermediary would hold clients' key materials, and clients would still depend on that intermediary's safeguards. The SEC cautions that spending itself does not establish safeguarding competence.

Alternatives could soften the scale advantage. Peirce's Sept. 30, 2025 statement described conditional staff no-action relief for certain state trust companies, and the October proposal would permit eligible state trust companies to custody crypto assets, subject to initial and annual due inquiry. Where an eligible institution supports an asset, clients may gain access without their adviser building the fallback arrangement.

The comment process and eventual adoption will determine whether the SEC adjusts the cost assumptions or the safeguards. Until then, the proposal's own numbers suggest the fallback pathway will concentrate among advisers that can amortize $433,833 a year — and the accountants willing to audit them.