July 24, 2009
I ask the Commission to vote against this proposed rule. I am very concerned about the possible passage on the SEC’s recently proposed rule requiring surprise audits of RIAs if they have the ability to deduct fees. I feel that passage of this will NOT increase consumer protection and will actually be to the detriment of clients.
I am against this rule for the following reasons:
· Independent third party custodians already have procedures in place to monitor advisor fee withdrawals.
· Clients are made aware of fee withdrawals on the statements from those third party custodians.
· Madoff and other Ponzi schemes results from a lack of enforcement of current rules from the SEC and FINRA.
· This proposal seems to be more politically motivated than consumer motivated. I have not heard of ANY cry from consumers requesting additional oversight on their advisors simply because they can deduct a fee from their account. As far as I know, there have been no systemic problems in this area (deducting fees) and the passage of this rule is unnecessary, costly and burdensome, particularly for small, independent investment advisers.
· I believe deducting a fee does not constitute custody. I personally have established bill pay and drafts out of my checking account to pay for various bills (mortgage, utilities, cell phone, etc.) and I don’t believe any one of those companies that deduct fees from my account have custody of my assets.
· The additional cost of the surprise audits, which some have estimated to cost between $10,000 and $15,000, could very well cause firms to reduce staff or post-pone the hiring of additional staff…both of which will lead to decreased service to clients. This is not a good thing, when you consider the current financial crisis.
· While the dollar cost of the audits could be from $10,000 to $15,000 for the typical RIA firm, that is not the total cost. Once you factor in the advisor and staff’s time needed to support the auditors, it could easily double that cost to $20,000 to $30,000.
· A better alternative is to hire more SEC examiners to enforce the rules we already have.
Dave Ragan, CFP®
Financial Planning Specialist
Grunden Financial Advisory, Inc.