Oct. 28, 2023
Dear Securities and Exchange Commission, I am writing in response to the proposed rule on Safeguarding Advisory Client Assets. I appreciate the Commission's efforts to enhance investor protections and address gaps in the custody rule. As an concerned investor, I would like to express my views and concerns relating to various aspects of the proposed rule. Scope of Rule: While I commend the expansion of the rule's coverage to include a broader range of investments held in a client's account, it is essential to ensure that the definition of assets and discretionary authority in custody are sufficiently clear to avoid loopholes that may compromise investor protections. Further clarification in this regard would be valuable for market participants. Qualified Custodian Protections: I recognize the need to enhance the protection of client assets, particularly in relation to crypto assets. It is crucial to strike a careful balance to avoid hindering innovation and restricting market access. The Commission should consider providing additional guidance on demonstrating exclusive control over crypto assets, taking into account the unique characteristics of these assets. Certain Assets Unable to be Maintained with a Qualified Custodian: The rule addresses the safeguarding of assets that are unable to be maintained with a qualified custodian. Robust recordkeeping, separation of duties, and regular reviews are important safeguards. However, it is necessary to weigh the burden of increased compliance requirements against the practicality and effectiveness of mitigating risks associated with such assets. Segregation of Client Assets: I strongly support the aim of ensuring that client assets are adequately segregated from the adviser's assets. Adapting exceptions to this requirement should only be considered when such exceptions are truly necessary and do not compromise investor interests. The priority should always be the protection of client assets, with exceptions granted sparingly and with clear justifications. Investment Adviser Delivery of Notice to Clients: The requirement for advisers to provide written notice to clients when opening an account with a custodian is an important step towards transparency and accountability. However, it is essential to ensure that the content of the notice is comprehensive and actionable, providing clients with all necessary information relating to the custodian and custodial account. Amendments to the Surprise Examination Requirement: I support the changes proposed for surprise examinations, as they contribute to safeguarding client assets and reducing the risk of loss. A clear and formal written agreement between advisers and independent public accountants for surprise examinations strengthens the integrity of the process, providing investors with greater confidence in the oversight and protection of their assets. Amendments to the Investment Adviser Recordkeeping Rule: Enhancing the recordkeeping requirements for investment advisers is a crucial step in improving oversight and investor protection. However, it is important to consider the potential burden these amendments may impose, especially on small advisers. The Commission should strive to strike a reasonable balance between the costs of compliance and the benefits gained from improved monitoring and enforcement. Transition Period and Compliance Date: The proposed one-year transition period for advisers to comply with the new rule is reasonable. It allows for adequate time to navigate the complexities of the amended requirements. However, it is essential to take into account the diverse range of advisers and their assets under management in determining specific compliance dates, as well as the resources required to meet them. In addition to the above concerns raised, I want to express my appreciation for the SEC's inclusion of a comprehensive economic analysis in the proposal. This analysis is crucial in evaluating the potential costs and benefits of the proposed rule amendments. I encourage the Commission to carefully consider the input received and make adjustments where necessary to strike the right balance between increased investor protection and avoiding undue regulatory burden. I also seize this opportunity to ask if there are any additional areas of concern or specific questions I can address in a public comment. Furthermore, if there are any overarching questions or general remarks regarding the proposal, I would be grateful for the opportunity to provide my input. Thank you for considering my comments on this important matter. I believe that by working together, we can achieve a regulatory framework that enhances investor protections, fosters market integrity, and promotes responsible and transparent practices in the advisory industry. Sincerely, Frederick Johnson