Subject: File No. S7-09-09
From: Steven L. Re, CFA

July 1, 2009

My comments regard the withdrawal of advisory fees from client accounts.

Over my 30-plus years in the investments industry, there have been repeated frauds which had one characteristic in common: the advisor was also the custodian, or in some way the advisor and custodian were not independent of each other, so that there were no checks and balances. The advisor/custodian could manufacture its own statements. The client had no ability to compare the advisor's statement to the custodian's statement to find inconsistencies. An independent advisor and independent custodian both have a self-interest in reporting to the client honestly, so that Madoff-type frauds cannot happen.

Treating the withdrawal of advisory fees as custody of client assets is not entirely accurate, because 1) clients direct advisors in writing to charge their fee liability to their accounts and 2) clients agree that advisors earn these fees, and therefore at some point the fees are considered the advisor's money, not the client's.

Annual audits of independent advisors who withdraw fees from client accounts held by independent custodians will increase the SEC's auditing burden substantially. Meanwhile, resources will be drawn away from where they really need to be directed - towards advisors and custodians who are not independent of each other.

In that vein, you have my full support to extend registration and auditing to the numerous hedge funds that manage enormous quantities of money, pay a staff of attorneys to make them think they can avoid registration, and who often are not independent of the custodians of assets they manage.

Thank you for your consideration.

Steven L. Re', CFA