July 16, 2009
As a partner in a financial planning and investment advisory firm that has been in business over 20 years, we provide comprehensive and affordable financial services to individuals, families, and small businesses that need professional help with financial planning, education, investment management, and ongoing monitoring of their portfolios. The financial maize has become so complicated, advice is just not for the wealthy, but needed by almost everyone.
I am writing about the Securities and Exchange Commission's (SEC) recent proposal to amend the custody rule under the Investment Advisers Act of 1940 (Proposed Amendments). I believe the Proposed Amendments are poorly designed for the purpose of protecting investors, will impose too heavy a burden on small investment advisers, and will place professional advice out of the reach of many investors.
We do not custody client funds or securities, but do debit management fees from accounts as a service to clients. As a result, clients and I would be directly impacted by the Proposed Amendments. There are noteworthy concerns:
It appears that we are being required to engage and pay at our expense a type of regulatory audit function by an accounting firm for this Proposal. Rising costs of compliance will push advice out of the reach of small investors. We will likely pass the audit costs on to clients or eliminate their fee debiting service in order to avoid the implications of the Proposed Amendments.
Focus should be narrowed to cover activities that place client assets at risk- The Proposed Amendments should be more narrowly focused to address the recent Ponzi schemes uncovered by the SEC. The Proposed Amendments would impose significant additional regulatory burdens and expenses on investment advisers with little or no enhancement of investor protection. There needs to be a balance provided to address the concerns of the small firm and regulatory requirement. The proposal does not provide balance.
Smaller firms will face too heavy a burden - The burdens imposed by the Proposed Amendments will fall most heavily on smaller investment adviser firms who provide essential services to middle-class investors, but lack the resources necessary to absorb the costs of the surprise audit or the disruption of business such an audit will cause.
I urge the SEC to consider these concerns as you work to protect investors.