Subject: FW: File Number S7-09-09
July 7, 2009
To whom is may concern,
I am a Financial Planning Association (FPA) member and an SEC-registered investment adviser. My partner are both Certified Financial Planner™ certificants and I also hold the Chartered Life Underwriter designation. We run an independent financial planning and investment advisory practice in Houston, Texas and we are absolutely opposed to the requirement in the proposed amendments to the custody rule that would subject investment advisers to a surprise audit by an accounting firm.
We have never had a complaint and like many of our constituents, we run our practice as cleanly and ethically possible. The proposed regulations punish ethical advisors such as ourselves but will do little to stop the Madoffs and Stanfords of the world. Madoff and all the other recently uncovered ponzi and other criminal schemes existed long before the stock market meltdown and will likely continue to exist in the future. The market meltdown only made the tide go out for a short time so we could see who was swimming in guilt.
- The proposed surprise audit appears to be more of a political reaction to public criticism of the SEC and congressional pressure after the Madoff scandal than an effective regulatory response.
- 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.
- 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 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. Further, the independent custodian our clients utilize (Schwab Institutional) already has alerts and limits in place that only allow us to deduct fees up to a certain percentage. Anything above that triggers a call to us and our clients.
- The new surprise audit requirement will add additional costs to my business that will ultimately be passed on to my clients. As a small shop with about $50 million under management, compliance issues are already quite burdensome. This is especially true given we have only about 50 clients and know each one and their situation intimately. Being subject to this audit would likely cost us an additional $8-$10k in out of pocket expenses alone. This is not a trivial amount for a firm of our size. Not to mention the time (our most valuable resource) it would take; time that would be effectively stolen from providing service and communication to existing clients.
In order to enhance consumer protection, I would support Congress appropriating additional resources to the SEC to hire and train additional examination staff to increase the regular audit cycle of investment advisers. Thanks so much for your time and consideration in this manner.
Paul E. Palmer, Jr., CFP®, CLU
Cypress Advisory Services Ltd., LLP