May 23, 2009
As an auditor with Price Waterhouse for 18 years, I know the values and costs of audited financial statements. Having an independent custodian is a very strong requirement and the SEC is to be supported for making this a requirement of Registered Investment Advisors ("RIAs").
Through independent custody, customers are furnished with periodic, generally monthly, statements of their accounts which are mailed directly to the customer by the custodian, independent of the RIA. Thus the customer has a periodic, reasonably frequent chance to review the assets and activity in his/her account.
However, in relation to the strengthening of this control, the additional proposed regulation, annual audit, is a significantly higher cost without significant benefits. An estimated $8,100 audit charge would cost me more than 10% of my current gross income (as a Tennessee RIA).
I urge the Commission to adopt independent custody as a requirement and to CONSIDER adopting monthly reporting as a requirment of the independent custodian, but, as the Commission does currently, to NOT require independent audit of those RIAs who use an independent custodian.
I'd be pleased to discuss further.
John M. Smartt, Jr., CPA
Tennessee Registered Investment Advisor