June 30, 2009
To whom it may concern-
I am writing to you in support of some of the key provisions of the legislative proposals encapsulated in Financial Regulatory Reform: A New Foundation. I am a financial planner and managing partner of a portfolio management firm that is registered with the SEC. I support much of what is proposed in the changes to the law. I have two comments regarding proposed changes.
One, I strongly agree with Page 71 of the Blueprint that points out, correctly, that "Retail investors are often confused about the differences between investment advisers and broker-dealers," and that "retail investors rely on a trusted relationship that is often not matched by the legal responsibility of the securities broker." The report says that investment advisors, and not brokers, are legally required to act as fiduciaries, and calls for all broker-dealers who provide investment advice about securities to retail investors to be "raised to the fiduciary standard to align the legal framework with investment advisers." I would say that it is in the best interests of financial consumers that everyone giving financial advice be brought up to this higher level of standard, the fiduciary standard. Obviously the broker-dealer industry will fight this, but if we are to have true reform, I believe this is necessary.
Second, I believe that “surprise audits” place undue burden on small firms such as our own. At an estimated cost of $8100 per audit, that is a very large burden to bear for us, pennies for large brokerage firms. I believe this is a strategy proposed by the broker-dealer firms to try and sink small fiduciary firms such as ours. We had our first SEC audit 3 years ago, and were impressed with the detail, depth and thoroughness of the investigators. Imagine our shock when the Madoff scandal broke, we could not imagine how a similar audit process that we went through could not have uncovered Madoff’s fraud. That suggests that additional audits are not the problem, but the strength, depth, and perhaps consistency of the audit process be standardized.
It is an unfortunate reality that the good are punished for the sins of the few who do evil. Please make an effort to minimize this punishment. I believe that all will be better served by prudent law making.