July 6, 2009
SEC’s Proposed Changes to the Custody Rule
Release No. IA-2876
“Custody of Funds or Securities of Clients by Investment Advisers”
Please let’s not punish the smaller investors by making it too expensive to service their accounts due to the costly overhead.
As a member of the Financial Planning Association and a registered investment adviser, I would like to comment on the SEC’s Proposed Changes to the Custody Rule Release No. IA-2876. In short, I am opposed to the requirement in the proposed amendments that would require a surprise audit of investment advisers by an accounting firm. This proposal seems to be more of a political reaction after the Madoff scandal than a reasonable regulatory response.
It is my understanding that 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.
It is my opinion that the Madoff and other recent scandals occurred and affected so many people due to a lack of enforcement of current rules by the SEC and FINRA, including ignoring repeated warnings from the media and whistle blowers. What value do rules have if they are not going to be enforced? It seems unreasonable to enact new rules when the current ones have not been effectively enforced. In addition, I believe 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.
It appears that recent schemes uncovered by the SEC did not have anything to do with fees deducted by investment advisers. I am not aware of any systemic problems in this area and the additional costs associated with the surprise audit requirement are unnecessary, burdensome, and would ultimately be passed on to clients. In addition, the time needed to comply with the surprise audit would take away valuable time that is needed to assist clients with their financial and investment needs during this ongoing financial crisis. So in more than one away it is the clients that would ultimately suffer from this requirement.
I am a staunch supporter of consumer protection. Therefore, instead of proposing unnecessary new rules I would like to see Congress increase funding to the SEC to hire and train additional examination staff to strengthen the regular audit cycle of investment advisers so that the current rules would be enforced.
Gordon T. Robinson, CFP®