July 28, 2009
File Number: S7-09-09
1) Exemption from Surprise Examinations for Advisors with Authority to Withdraw Advisory Fees from Client Accounts.
Our custodian is already performing this function. Our qualified custodian, Charles Schwab & Co. currently audits the advisory fee withdrawals they make for our clients. Schwab’s audit system notifies them automatically if a fee withdrawal request exceeds parameters Schwab has established. No withdrawals exceeding these parameters are permitted.
Installing the audit function at the custodian level, rather than at the advisor level serves to protect the client while substantially reducing the overall cost of this audit function to the advisor universe.
This audit protection could be implemented by requiring, to be qualified, a custodian would have to provide this audit function.
2) Surprise Audit for Advisors with Custody over Client Assets Other than for the Withdrawals of Advisory Fees
We propose that the surprise audit of an advisor who has custody for proposes beyond fee withdrawals cover 20% selected at random at each surprise audit rather than all applicable accounts.
This provision would significantly reduce the cost of the audit while at the same time still achieve the objective of the audit.
Kim Gardey
Gardey Financial Advisors