June 4, 2009
The very BEST solution to the abuses that rage in the investment advisory world that proposed rule change S7-09-09 seeks to address (as instantiated by Stanford, Madoff et. al.) is the SIMPLEST one that will have the desired result which is to without exception require independent custody of all client assets, that quarterly statements be sent to clients by the independent custodian and that ALL deducted fees be disclosed to clients (itemized by type/reason). These requirements would absolutely slam the door on the abuses referenced in the proposed rule change that are absolutely a very serious problem that undermines the public's confidence in investment advisers. With this system of requirements, the Madoff ponzi scheme would not have been able to even get off the ground!
Requiring that all asset managers, even those who don't have custody of client assets as that is defined for ADV filing purposes, to undergo surprise audits is not the best possible solution to the problem because it is not the simplest and most economic. Why use an atomic bomb to solve the problem when a simple mouse trap will do the trick?
Note that I have no monetary interest in the outcome of this question since, as an hourly financial planner I do not manage assets in any way.
Thanks, Kay Conheady