June 22, 2009
The proposal seems to suggest that advisors that are allowed to deduct client investment advisory fees from a client's brokerage account are deemed to have custody of client assets. The proposal believes that a solution to "protect the consumer" would be to require the advisor to personally pay for an independent annual audit to verify client assets.
This proposal is cost-prohibitive for small independent advisors. At a minimum, if this proposal is passed, please consider including a waiver for the independent advisor if they are complying with the following:
1. Use an independent custodian.
2. Client has granted the advisor limited power of attorney to have the investment advisory fees withdrawn from their account.
3. Client receives a monthly statement directly from the custodian. This statement discloses the fees when withdrawn from the client's accounts.
4. Client receives a quarterly statement from the advisor that includes an invoice that clearly identifies fees that will be collected and the method of calculating those fees prior to the fees being withdrawn from the account.
5. The fees charged and method of collection is fully disclosed by Advisor to Client at the start of the relationship. Client has the option to pay fees direct (by check) or opt to have fees paid directly by their account to the advisor.
Perhaps a further solution would be for clients to sign an additional disclosure and acceptance form that acknowledges the approval for this practice of fee collection by the Advisor?
It is not in the consumer's best interest to cause a financial hardship to the small, independent advisor who is already acting as a fiduciary to their client and has their client's best interests at heart
Thank you for your consideration.