July 23, 2009
While I understand the concern of the SEC regarding the misappropriation of client funds, I do not think that simply because an advisor exercises the written authority to deduct properly calculated investment management fees directly from a clients account, that the advisor should be subjected to an uncontrollable cost by a CPA for a surprise examination.
The SEC has regulations in place that address this issue. Before an advisor may deduct fees from a client's account, he must have written authority from the client, provide the client a copy of the invoice, and the charge must appear on the client's following statement. Additionally, through the requirements of regulations regarding written policy statements specific to the advisor's business, an advisor must have written policies where he acknowledges that he is a fiduciary, that address the safekeeping of client assets, and a written policy as to internal controls.
As to an advisor's ability to honor a client's request for withdrawal, I believe it is quite clear that a client's requests for funds may be honored only if the check is made payable to the accountholder as shown on the account, and is mailed to the client's address of record. Any exceptions to these requirements must be documented by a written request signed by the client.
Again, regulations are in place to control abuse of this issue.
All RIA's are required to have a Chief Compliance Officer. Any person accepting that responsibility should certainly have the common sense, as well as policies and procedures in place, to see that these policies are followed. Additionally, third party custodians have similar requirements as to disbursements.
It seems that the SEC has regulations in place to address the issues referenced above. I also realize that the SEC does not have the capacity to examine RIAs as often as they would like. However, placing the uncontrollable cost of a surprise examination by an independent CPA on all RIAs that are doing what clients and regulations permit appears inconsistent with having regulations, requiring written policies, requiring CCOs, providing annual CCOutreach training opportunities, and your periodic examinations.
A large number of RIAs are small, as is our firm. This additional cost will be significant to our bottom line, and will accomplish nothing as far as our desire to comply with regulations or be honest and committed to our clients. To submit all RIAs to this proposed expense for no other reason than that they are properly following regulations regarding deducting client investment management fees from their account, or having the custodian send a check payable to the accountholder directly to the accountholders address, seems to void the purpose of the regulation, the need for written policies, the need for a CCO, and the need for an RIA to be a fiduciary.
Thank you for the opportunity to submit these remarks on this very important and costly proposal.