Oct. 23, 2023
Dear SEC, I am writing to provide my public comment on the proposed rule "Safeguarding Advisory Client Assets". While I appreciate the SEC's goal of enhancing investor protections and addressing gaps in the custody rule, I have concerns regarding the potential overreach of regulatory authority and the impact on privacy. Firstly, I believe that the SEC's proposed rule may exceed its regulatory jurisdiction and encroach on areas that should be regulated by other agencies. By expanding the coverage to include a broader range of investments held in a client's account, the SEC is stepping into territory that may be more appropriately regulated by other financial entities. It is important for regulatory agencies to respect their defined jurisdictions to ensure a balanced and efficient regulatory framework. Furthermore, I am concerned about the privacy implications associated with the proposed rule. The requirement for advisers to deliver notice to clients, including custodian information and custodial account numbers, raises concerns about the privacy and safety of sensitive financial data. With so many third parties having access to this information, there is an increased risk of potential breaches and misuse of personal information. Safeguarding client assets should not come at the expense of jeopardizing client privacy. In addition, the proposed rule's amendments to the Investment Adviser Recordkeeping Rule require advisers to maintain records related to client notifications, custodian information, and transactions, among others. While the intention behind this amendment is to improve oversight and investor protection, the increased burden of recordkeeping may lead to inadvertent errors and place significant compliance costs on investment advisers, which could ultimately impact their ability to provide effective advisory services. Considering the potential economic impact of the proposed rule, it is important to carefully balance investor protections with considerations of efficiency, competition, and capital formation. The SEC acknowledges that the magnitude of compliance costs will depend on current custodial practices and existing controls. However, it is crucial to ensure that the costs placed on investment advisers are reasonable and not overly burdensome, particularly for smaller advisory firms. In relation to the Paperwork Reduction Act Analysis, I would like to express my concern about the burden placed on investment advisers with the increased collection of information requirements. While ensuring the confidentiality of certain responses is commendable, the estimated total annual hour burden and external cost burden for advisers subject to the proposed rule seem significant. It is essential to carefully evaluate the necessity, accuracy, and quality of the information requirements to minimize unnecessary costs and administrative burdens. Lastly, with regard to the potential impact on small entities, it is important to ensure that the proposed rule and amendments do not disproportionately burden smaller investment advisers. While most small advisers registered with state authorities are not expected to be affected, the estimated compliance requirements and costs for small advisers should be carefully justified and reasonable. In conclusion, I urge the SEC to carefully consider the potential overreach of regulatory authority and the impact on privacy when finalizing the proposed rule "Safeguarding Advisory Client Assets". Privacy concerns associated with sensitive financial data and the increased burden of compliance costs should be addressed to ensure a balanced regulatory framework that effectively protects investors while supporting the growth and competitiveness of investment advisers. Thank you for considering my comments on this important matter. Sincerely, Jan