Oct. 22, 2023
Dear Securities and Exchange Commission, I am writing to express my concerns regarding the proposed rule entitled "Safeguarding Advisory Client Assets." While I appreciate the SEC's efforts to enhance investor protections and address gaps in the safeguarding of client assets, I believe there are certain aspects of the proposed rule that require further consideration and revision. One area of concern is the inclusion of digital assets or cryptocurrencies in the rule. Digital assets, such as cryptocurrency, have emerged as an innovative and transformative force in the financial industry. However, regulatory uncertainties surrounding these assets pose significant challenges. I urge the SEC to carefully consider the unique characteristics of digital assets and craft provisions that strike a balance between safeguarding investor assets and fostering innovation in this rapidly evolving space. Furthermore, it is crucial that the SEC prioritize the protection of civil liberties while formulating and implementing regulatory measures. As commenters, we must emphasize the potential impacts of proposed rules on personal freedoms, as these are fundamental rights protected by the Constitution. For example, a proposed rule related to surveillance should be scrutinized for its potential infringements on Fourth Amendment protections. Additionally, the SEC should thoroughly consider the potential impacts of the rule on First Amendment rights and free speech. It is of utmost importance that regulators ensure the preservation and protection of individual freedoms guaranteed by the Constitution. In terms of the economic analysis, I believe there needs to be a more nuanced assessment of the proposed rule's benefits and costs. While the rule undoubtedly enhances investor protections by reducing the risk of asset loss, the compliance costs to investment advisers should not be overlooked. The magnitude of these costs will vary depending on current custodial practices and existing controls. It is essential for the SEC to conduct a comprehensive analysis that takes into account the varied practices among investment advisers to accurately estimate the economic effects of the proposed rule. Moreover, the proposed amendments to Form ADV and the additional reporting and compliance requirements may have implications for efficiency, competition, and capital formation. While the rule aims to enhance client and investor protections, it is vital to carefully assess how it may impact advisory services, competition in the industry, and the compliance costs for qualified custodians. Balancing these considerations will ensure the continued efficiency of investments and promote capital formation. It is commendable that the SEC welcomes comments on reasonable alternatives to the proposed rule. This demonstrates a commitment to considering diverse perspectives and crafting regulations that strike an appropriate balance between investor protections and economic realities. I encourage the SEC to actively engage with market participants and stakeholders to explore alternative approaches that achieve the desired outcomes while minimizing unintended consequences, particularly for small entities. Another critical aspect that requires attention is the potential impact of the proposed rule on small entities. It is important to acknowledge that most small advisers registered with state authorities may not be significantly affected by the rule. However, the estimated compliance costs for small advisers should be carefully evaluated to ensure that they are proportionate and reasonable. Although further clarification or simplification may not be deemed necessary at this time, ongoing assessment and dialogue are vital to fostering an environment of inclusivity and fairness for all market participants. In conclusion, I urge the SEC to carefully consider the concerns I have raised and undertake a comprehensive review process to address any potential issues with the proposed rule. The dynamic and evolving nature of the financial industry requires a thoughtful and adaptive approach to regulation. By incorporating diverse perspectives and considering the potential impacts on civil liberties, the SEC can create a balanced regulatory framework that promotes investor protections without stifling innovation and growth. Thank you for considering my comments on the proposed rule. I appreciate the opportunity to contribute to the public discourse surrounding this critical issue. Sincerely, Brad Federer