Subject: File Number S7-09-09

July 9, 2009

The assertion that we have custody of client funds because we use a firm like Schwab or TD Ameritrade that lets us withdraw up to 2% of client funds per year in fees is perhaps technically accurate, but this custody is very limited in actual peril to clients. I assure you, clients see our fees being extracted, because the third party custodian statements make it very clear, as do our quarterly reports to clients (which we are required to provide several days before actually extracting the fees).

The proposal to require regular surprise audits of independent RIAs to see if we’re extracting excessive fees from client accounts is completely misguided.

The problem isn’t advisers taking excessive fees. The problem is advisers who don’t use third-party custodians cooking the books and sending fraudulent statements to clients about the value of their accounts.

This proposal will result thousands of “yup, no problem here” audits of RIAs with no substantial custody of client funds. It will divert resources from the RIAs who actually do have substantive custody of client funds…and who therefore have far more ability and temptation to defraud the public.

Let’t not spread the SEC’s resources so thin tracking trivial risks that it can’t follow up on the big risks.

Tom O'Connor, CFP®, CFA