Subject: File No. S7-09-09
From: Rich Arzaga
Affiliation: Founder and CEO, Cornerstone Wealth Management
June 30, 2009
Please accept my feedback to this effort. I am a FPA member and SEC-registered investment adviser. I am opposed to the requirement in the proposed amendments to the custody rule that would subject investment advisers to a surprise audit by an accounting firm. My reasons:
- The proposed surprise audit appears to be more of a political reaction to public criticism of the SEC and congressional pressure after the Madoff scandal than an effective regulatory response.
- The SEC already resolved one of the major problems with the custody rule, which was eliminating a loophole from registration for certain accounting firms with the PCAOB that Madoff's accountant used to avoid detection of its phony auditing practices.
- The Madoff and other Ponzi schemes resulted from a lack of aggressive enforcement by the SEC and FINRA of current rules and ignoring repeated warnings from the media and whistle blowers. The SEC should hold FINRA accountable for its shared oversight of Bernie Madoff in conducting the Ponzi scheme for decades as a broker-dealer before registering two years ago as an investment adviser.
- The Ponzi schemes uncovered by the SEC had nothing to do with fees deducted by investment advisers. As far as we are aware, there have been no systemic problems in this area and are unnecessary, costly and burdensome, particularly for small, independent investment advisers.
- The new surprise audit requirement will add additional costs to my business that will ultimately be passed on to my clients. [Provide an example of how this will affect your business, including taking away time needed to assist clients during the ongoing financial crisis.]
- In order to enhance consumer protection, I would support Congress appropriating additional resources to the SEC to hire and train additional examination staff to increase the regular audit cycle of investment advisers.
But I think it is a terrible waste of money, time, and resources to regulate advisors who custodian assets and are still subject to this unnecessary oversight because the fee is collected by the custodian on behalf of the advisor. Makes absolutely no sense, and is a gross over-reach of what you are trying to accomplish. More regulation is not smart; smart regulation is smart. No on subjecting advisors who collect a fee but donít custodian of File Number S7-09-09.