July 1, 2009
I would like to voice my comments regarding the proposal requiring Registered Investment Advisors that have the ability to debit fees from client account undergo an annual suprise audit. Specifically, this proposal will be costly to RIAs and these cost are likely to be ultimately passed on to the end client. This proposal seems completely unneeded and the safeguards sought could be accomplished under existing protection policies followed by most of the various custoidians (i.e. TD Ameritrade, Schwab, Pershing, etc.). These custodians already have a safeguard in place where an advisor is limited on the total annual fee that can be deducted from a client's account, such as 3% annually. Thus, most advisors charge a fee in the range of 1% or less annualy, so having a 3% "barrier" prohibits "rogue" advisors from deducting more than 3% from any one account, effectively protecting the end client.
I find it a bit disheartening that the Commission would propose additional policy practices that appear unnecessary and costly. The violations and "theft" by Bernie Madoff could not have been perpetrated had the Commission simply required the use of an outside custodian to custody client assets, thereby putting a barrier between the advisor and the client assets. This same approach has worked effectively with mutual funds, where the underlying assets are held separately from the advisor.
Thank you for taking my comments.
Christopher D. Rich, CFP