Oct. 29, 2023
To whom it may concern, I am writing to express my strong opposition to the proposed rule S7-04-23, which would amend the custody rule under the Investment Advisers Act of 1940. I believe that this rule would impose unnecessary and burdensome costs on investment advisers and their clients, without providing any meaningful benefits or protections. The proposed rule would require investment advisers to undergo a surprise examination by an independent public accountant at least once a year, if they have custody of client funds or securities. This would create significant compliance challenges and expenses for advisers, especially for small and mid-sized firms that may not have the resources or expertise to deal with such audits. Moreover, the proposed rule would not prevent fraud or misappropriation of client assets, as it would only detect such incidents after they have occurred. The SEC already has adequate tools and authority to monitor and enforce the custody rule, such as inspections, examinations, and enforcement actions. The proposed rule would also require investment advisers to obtain a written internal control report from an independent public accountant, if they or a related person act as a qualified custodian for client funds or securities. This would effectively force advisers to use third-party custodians, as obtaining such a report would be prohibitively expensive and time-consuming. This would limit the choice and flexibility of advisers and their clients, and potentially expose them to higher fees, lower returns, and operational risks associated with third-party custodians. The proposed rule would further require investment advisers to maintain client funds and securities in accounts that are titled in the name of the client or that contain only client funds and securities. This would prevent advisers from using omnibus accounts, which are widely used in the industry to facilitate trading, settlement, and custody of client assets. Omnibus accounts offer many benefits to advisers and their clients, such as lower costs, faster execution, enhanced liquidity, and reduced errors. The proposed rule would eliminate these benefits and create inefficiencies and complexities in the custody process. In summary, I urge the SEC to withdraw the proposed rule S7-04-23, as it would impose excessive and unjustified costs on investment advisers and their clients, without enhancing the protection or security of client assets. The proposed rule would interfere with the efficient functioning of the custody market and harm the interests of investors. Sincerely, A concerned party