Subject: File No. S7-09-09
From: Paul Schnitman

July 1, 2009

I do not feel that Advisors who withdraw fees from a client's account, but otherwise does not custody client assets, should be subject to the proposed surprised audit requirement. We give our clients a choice of writing a check or taking the fee out of the account. All but one want us to deduct it from the account. There are two reasons: 1) they don't want to have to write checks quarterly, and 2) then the fee is part of the return calculation so they can see their returns NET of fees. When they write the check for the fee outside of the account (ie. it comes from another account), then it is NOT included in the performance returns. We already send them an invoice and we show the fee on a transaction ledger in their reports, plus we provide that information in a tax report in their report.

The requirement for an audit will be a huge financial expense for small advisors, and I feel it is totally unnecessary if the only custody issue is caused becauae of withdrawing the fees.