July 16, 2009
To Whom It May Concern:
Your change in the definition of what constitutes custody boggles the human mind. Payment of a fee out of clients' account (which they happily agree to) would now constitute custody? The advisory agreement authorizes this type of withdrawal, and only this type of withdrawal. Most clients ask how they would pay me and are happy to learn that the payment comes out of their managed account and that they will not have to write a check for it. My broker-dealer sends an invoice to each client about 10 days to 2 weeks in advance of the withdrawal, so that client is well informed about the coming transaction. In addition they receive monthly/quarterly statements from the TRUE custodian of the funds. When I receive a check from a client, I have 24 hours to send it on to my broker dealer, and 99% of the time it is sent the same day that it arrives via UPS.
So now you think I should undergo an annual audit the estimated cost of which would represent 10% of my bottom line. I can do one of two things - raise the clients' fees so that they have to pay for this exercise in futility or change the agreement and have the client write the check, neither of which improves the clients' lot one iota. It is no wonder that governmental agencies are generally considered to be inept. Imposition of this rule will certainly lead to an unwillingness to serve smaller clients, as each client will add to the cost of sending out confirmations.
It was not the investment advisors who brought on the catastrophe of 2008 and the first quarter of 2009. Why aren't you all over the big banks and the band of fools who thought packaging sub-prime loans (calling many of them AAA) was really a great idea. A single Bernie Madoff does not make 9500 investment advisors a bunch of crooks who need to be watched 24/7. Bernie had an auditor and a fat lot of good it did for his clients, yet it would have satisfied your proposed rule change. If you suggest that only big 4 accounting firms can do these audits, it should be pointed out that they were the ones who did Enron, Waste Management, Tyco, et al.
The vast majority of advisors are honest, caring professionals who do an excellent job of looking after their clients. How many you will drive out of the profession with this ridiculous rule change only time will tell.
Being a CPA, and part owner in a CPA firm will undoubtedly lead to my recouping some of the added costs through obtaining some of these asinine surprise visit audits. On the other hand, I detest waste and this is one regulation that is just that - A WASTE. Please reconsider this rule change and stop trying to solve problems where none exist. By the way, who audits the SEC?
David L. Anneken, CPA/CFP®