Oct. 23, 2023
Dear Sir/Madam, I am reluctantly writing to submit a public comment on the Securities and Exchange Commission's proposed rule on safeguarding advisory client assets. While I appreciate the Commission's attempt to enhance investor protections and address gaps in the custody rule, I cannot help but express my dismay and concern regarding certain aspects of the proposed rule and its potential negative consequences for the public interest. One of my main gripes with this proposal is the seemingly thoughtless expansion of the rule's scope. While I understand the intention behind including a broader range of investments in a client's account, it appears that little consideration has been given to the potential repercussions. Are the increased compliance costs associated with this expansion justified? Will smaller investors bear the brunt of these expenses, thereby limiting their access to financial services? These are important questions that seem to have been overlooked. Moving on, the proposal's insistence on the use of so-called "qualified custodians" raises eyebrows. It seems that the Commission's desire for investment advisers to maintain exclusive control over client assets, particularly in the case of crypto assets, is causing unnecessary complications. Have the practical challenges and associated costs of enhanced cybersecurity measures been adequately considered? Or will these added expenses be conveniently passed on to clients, further diminishing their access to affordable financial services? Furthermore, I find the proposed amendments to the surprise examination requirement to be particularly burdensome. While I appreciate the intention of safeguarding client assets and reducing the risk of loss, the ramifications of engaging an independent public accountant for small and medium-sized investment advisers cannot be ignored. Will this requirement lead to significantly higher operational costs, potentially resulting in a reduction in the availability of services provided by these advisers? It seems that the potential consequences of this rule have been downplayed. Considering the economic impact of the proposal, particularly regarding efficiency, competition, and capital formation, is of utmost importance. While I understand the objective of enhancing investor protections, it is imperative that the Commission strikes a balance that does not unduly burden investment advisers and qualified custodians. Excessive regulation and overreach could stifle the efficiency of investment activities and dampen economic growth, which surely we would all agree is not the desired outcome. In conclusion, I cautiously recognize the Securities and Exchange Commission's efforts to improve investor protections through the proposed rule on safeguarding advisory client assets. However, I implore the Commission to seriously contemplate any unintended negative consequences on the public interest. Limiting access to financial services, increasing costs for consumers, or inhibiting capital formation would be detrimental outcomes that must be prevented. It is my hope that a constructive and balanced approach can be employed. Sincerely, Phil Lawrence