July 1, 2009
I am writing to urge you to please reconsider the changes being proposed to the custody rules for financial advisors.
It is not inconceivable to me that as an investment advisor I would have to endure further regulations as a result of our current environment. However, it is important to note that many of the problems our industry faces today could have been avoided had the responsible regulatory bodies simply enforced existing requirements.
Fee deduction is not the root of the problem and adding further requirements will cause undue burden to independent investment advisory firms (many of whom are small “mom and pop” boutique firms that take their fiduciary duty and regulatory compliance very seriously).
This burden would not only be one of finances (e.g. the high cost of the audit) but also one of resources (e.g. time and energy). Every minute spent on further documenting compliance standards that are already being adhered to is a minute that can and should be spent helping navigate clients through these tumultuous times.
Furthermore, compare our fee deduction methods to those used by many government and retail establishments. Electric/gas and water bills, gym memberships, credit card bills, cell phone bills etc. can all be paid through EFT (electronic funds transaction). The consumer signs an agreement upfront indicating the account from which they would like their fees paid and the provider deducts the fees directly from the consumer’s checking account to pay for the products/services rendered.
Is the electric company considered a custodian? Is the cell phone company considered a custodian? NO! Then why are we considered custodians simply because we make it convenient for clients to pay their fees? How is this any different than the EFT system? We are not deducting anything greater than the fee charged and many of the custodians have safeguards in place to make sure the fee deducted does not exceed a set percentage (usually around 2-3%) of the account.
Our advisors are members of the AICPA, FPA, NAPFA and the CFA Institute, all organizations that require adherence to a Code of Ethics. We do not believe adding new requirements and regulations regarding fee deductions will weed out the “bad apples” in our industry. ENFORCING the many existing regulations WILL. Please add resources where necessary to ensure the financial industry adheres to higher standards.
Thank you for your consideration.
Laurie Bagley, CFA
Strategic Wealth Advisors, LLC