Oct. 23, 2023
I am writing to express my concerns regarding the proposed rule on "Safeguarding Advisory Client Assets." While I understand that the aim of this rule is to enhance investor protections and address gaps in the custody rule, there are certain areas where I believe the SEC may be overreaching its regulatory authority. One area of concern is the scope of the rule. The proposed expansion to include a broader range of investments held in a client's account raises questions about the SEC's jurisdiction. It is crucial to ensure that the appropriate regulatory authority is responsible for overseeing specific types of investments. Encroaching on areas that should be regulated by other agencies could lead to confusion and an unnecessary overlap of regulations. Additionally, I have reservations about the inclusion of crypto assets in the rule. While it is important to address how investment advisers safeguard these assets, the fast-paced and evolving nature of cryptocurrencies requires a nuanced and flexible approach. It is crucial for the SEC to work in tandem with other regulatory bodies in order to create an effective and harmonized framework for the protection of client assets in this rapidly evolving landscape. Furthermore, certain provisions in the rule seem to place a heavy burden on investment advisers when it comes to assets that cannot be maintained with a qualified custodian. While I acknowledge the need for enhanced recordkeeping, separation of duties, and regular reviews, it is imperative that the SEC carefully considers the practicality and proportionality of these requirements. The potential costs and administrative burdens imposed on advisers should be weighed against the benefits they provide in terms of investor protection. Another concern is the proposed rule's impact on competition and capital formation. While the aim is to promote investor protection, overly burdensome regulations can stifle innovation and limit the participation of small and emerging investment advisers. It is crucial to strike a balance between protecting investors and allowing for a competitive and dynamic marketplace. In relation to the economic analysis, I appreciate the SEC's effort to consider the costs and benefits of the proposed rule. However, given the varying practices among investment advisers, it becomes challenging to accurately estimate the economic effects. It is crucial for the SEC to further assess and scrutinize the potential economic implications, in order to ensure that the benefits of the rule outweigh the associated costs for all stakeholders involved. Furthermore, I would like to bring attention to the potential unintended consequences of the proposed rule. While it is important to enhance investor protections, there may be unforeseen effects on investment advisory services, especially for qualified custodians. The SEC should carefully evaluate the impact on the industry and consider alternative approaches that may achieve the same objectives while minimizing unintended consequences. Lastly, I appreciate the SEC's transparency in seeking public input on the proposed rule amendments. It is encouraging to see that the SEC welcomes comments on reasonable alternatives and potential overlooked benefits and costs. I believe that a collaborative approach, which actively seeks input from various stakeholders, can result in more effective and balanced regulations. In conclusion, while I recognize the need to enhance investor protections and address gaps in the custody rule, it is crucial for the SEC to carefully evaluate the potential overreach of its regulatory authority and ensure that the proposed rule strikes the right balance between protection and innovation. I urge the SEC to actively consider the concerns and suggestions raised by various stakeholders during the comment period in order to craft a rule that genuinely serves the best interests of investors and the industry as a whole. Thank you for considering my comments. Sincerely,