July 13, 2009
To The SEC:
I am a member of the Financial Planning Association and an SEC-registered investment advisor. I am a sole-proprietor and have been in business for more than 12 years. In those years, I have not had one complaint, or one legal action, brought against me. I am adamantly opposed, for a number of reasons, to the requirement in the proposed amendments to the custody rule that would subject investment advisers to a surprise audit by an accounting firm.
· It appears that the proposed surprise audit is an ill-conceived political reaction to the public criticism of the SEC following the Madoff scandal. It also appears to be a not-so-veiled attempt to placate an over-zealous and grandstanding Congress.
· 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. The ability to debit fees through a qualified custody in not the same as having custody.
· The Ponzi schemes uncovered by the SEC had nothing to do with fees deducted by investment advisers. As far as I know, there have been no systemic problems in this area. Annual surprise audits are therefore unnecessary, costly and burdensome, particularly for small, independent investment advisers like myself.
· The new surprise audit requirement will add additional costs to my business that would ultimately have to be passed on to my clients. For the past three years, I have spent more than $15,000 on outside professionals to ensure that I am compliant with all rules and regulations. To ask me to spend an additional $5,000 - $10,000 per year would be a huge burden for a small firm like mine and would take valuable time away from providing top-notch service to my clients.
· 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.
I hope you will reconsider this very ill-conceived legislation. Thank you for your attention.
Werlinich Asset Management, LLC