July 15, 2009
To whom it may concern,
I am a member of FPA Massachusetts and SEC-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 an accounting firm. I am in favor of more strictly enforcing the policies already in place within the powers of Sec and FINRA. 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 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 Madoff and other 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 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. 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 and 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 in the need for increased investment fees. It will favor larger firms from a competitive standpoint. Those larger firms are the ones that need more oversight. 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.
Please consider independent advisors and their clients and the value clients have by not have largering firms with inherent conflicts of interest. More overhead will lead to more cost for clients.
Thomas P. Holland, CFP
Partner, Wealth Advisor