June 30, 2009
I am the sole owner of an SEC Registered Investment Advisory firm under the laws of Illinois and United States.
I strongly oppose the requirement in the proposed amendments of the noted file above as to the custody rule that would subject investment advisers to a surprise audit by an accounting firm. I set forth my reasoning below. Other provisions included in the amendments appear to be reasonable and potentially effective.
Primarily, as I have watched recent headlines from Congress and Wall Street individuals, it appears audits by the SEC would be most appropriate for investment advisory firms rather than accounting audits. I support more funding for the SEC if it is specifically designated for audits.
Genius is not required to uncover how the Madoff and other Ponzi schemes resulted from a lack of aggressive enforcement by the SEC and FINRA of current rules and ignoring repeated warnings from the media and whistle blowers. The SEC should hold FINRA accountable for its shared oversight of Bernie Madoff in conducting the Ponzi scheme for decades as a broker-dealer before registering two years ago as an investment adviser. The SEC is barking up the wrong tree and it appears to home town main street that no one in Congress will make FINRA or the SEC pay for this dereliction of fiduciary duty.
Further, Ponzi schemes uncovered by the SEC had nothing to do with fees deducted by investment advisers. As far as we are aware, there have been no systemic problems in this area and are unnecessary, costly and burdensome, particularly for small, independent investment advisers.
Fees paid by my clients are disclosed in multiple ways. The cost and burden of surprise audits by an accounting firm will take my time away from guiding my clients during the most trying time in their economic lives. These added fees will by passed along to the clients and provide no benefit of comfort beyond their existing measure of our sincerity and honest invoicing of their quarterly fees.
From our view, the SEC already resolved one of the major problems with the custody rule, which was eliminating a loophole from registration for certain accounting firms with the PCAOB that Madoff's accountant used to avoid detection of its phony auditing practices. So we conclude that this entire matter appears to be of political motivation and knee jerk reaction in order to make Congress appear to be doing something. Most if not all our clients feel completely betrayed by Congress and past and current administrations in this great nation.
Alfred J Hicks