July 9, 2009
Gentlemen
I am a FPA member and a Registered Investment Adviser.
I am opposed to the requirement in the proposed amendments to the custody rule that would subject investment advisers to a surprise audit by a CPA firm simply because an RIA charges management fees to client accounts held at an outside custodian. The proposed surprise audit appears to be more of a political reaction to public criticism of the SEC and congressional pressure after the Madoff scandal than an effective regulatory response.
The Madoff and other Ponzi schemes resulted from a lack of aggressive enforcement by the SEC and FINRA of current rules and had nothing to do with fees deducted by investment advisers. As far as I am aware, there have been no systemic problems in this area and is unnecessary, costly and burdensome, particularly to a small independent investment advisory firm such as mine.
A more logical mandate would be to have Congress appropriate additional resources to the SEC to hire and train additional examination staff to increase the regular audit cycle of investment advisers.
Finally, as someone who was a Banking Partner in one of the largest CPA firms in Chicago and an RIA for the past 25 years in Hawaii, I have a unique perspective. I have a simple question to ask you: If I were retained as a CPA to audit a firm as required by the proposal simply because the firm charges management fees to client accounts and their assets are held at a qualified custodian (in our case Schwab), what exactly would I be auditing? - My firm does not hold client securities that would either be examined or confirmed with others holding securities on our behalf, as was a customary part of a Director’s Examination or Certified Audit of a bank’s financial statement.
Respectively,
F. Dennis De Stefano
Registered Investment Adviser
CFP, CPA, CWM, RFC, CFS, CRC
NAPFA-Registered Financial Advisor
De Stefano Wealth Management