July 3, 2009
I am a SEC registered investment advisor, practicing as a fee-only provider of financial planning and investment advice. I am also a member of the Financial Planning Association and a Certified Financial Planner. I am held to and operate under a fiduciary standard.
I support enforcement changes that protect consumers from fraud, including proposals to require third party custody or comprehensive audits for firms who have direct custody of client assets. However, I oppose the requirement that registered investment advisers who debit fees from client accounts be included in this group for the following reasons:
Recent 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 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.
These proposals 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.
Virtually all SEC registered investment advisers use an independent custodian for client assets. Current SEC rules and restrictions imposed by independent custodians already provides significant protections for consumers including the requirement of explicit permission from client to debit fees, limits on the amount of fees that can be debited, requirement for notification of fees debited, and a requirement for statements to be sent directly from the independent custodian.
From my perspective, all of these requirements are sufficient to prevent fraud and should be verified as part of standard SEC oversight. In that regard, 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.