Subject: File No. S7-09-09
From: John C Gay
Affiliation: Registered Investment Adviser (State of Texas) and CFP Professional

May 22, 2009

It is my belief (which you may verify) that the great majority of RIAs that have "custody" of client assets are so categorized only because of their ability to deduct client fees. I propose a redefinition of the term "custody" to exclude such advisers. The regulatory burden involved with audits and surprise examinations is onerous and should only be imposed on firms that represent a significant risk to the safety of client assets. For advisers that (by the new definition) do not have custody but do have the ability to deduct client fees directly, I propose that the independent custodian firm(s) be required to monitor client fee deductions to ensure that they are reasonable (in terms of amount and frequency). Many custodians already have such monitoring policies in place including "red flag" safeguards to require human intervention in the event that a fee deduction threshold is exceeded.