July 7, 2009
I am writing in regard to proposed custody rule (IA -2876) that would subject investment advisors who have the authority to debit advisory fees from clients custodial accounts, to an annual surprise audit by an independent public accountant. As a registered RIA and candidate for the CFP designation, I applaud the spirit and the majority of the proposed regulations that were announced by the Obama administration last month. We take seriously our fiduciary duty to our clients and feel strongly that anyone using the moniker "financial advisor" should be similarly bound to put the needs of their clients above all others.
For smaller independent advisors such as ourselves who are committed to using a third party custodian, we do feel that the surprise audit proposal would place an undue burden on our business. The cost of such an audit will likely be quite high. As we council clients through the account set-up process we are careful to point out how the fee deduction will be handled, when they will see the fee deducted on their custodial statement in addition to providing the client with a pro-forma invoice reflecting the fee deducted. For the few clients who ask that fees be charged outside of the account (primarily IRA accounts that the clients are seeking to optimize for the benefit of their heirs) we accommodate their requests by billing direct. I could see how the surprise audit process could be used as a "probation tool" for those advisors who are under review for previous complaints or violations, but for those whose process is transparent and properly documented it would be unduly onerous.
We have all been affected by the egregious acts of a few bad actors in our industry but it would be "overshooting the mark" to impose this particular rule on a process that is transparent to the client, monitored by the custodian and already subject to examination by the SEC.
Thank you for considering my comments.
Brint Detwiler, MBA, AAMS, AWMA