July 22, 2009
I am a member of the Financial Planning Association (FPA), and a state of Michigan registered financial advisor.
I am opposed to the requirements in the proposed amendments to the custody rule that would subject advisers to a surprise audit by an accounting firm. This seems to me to be an overly sensitive reaction to the Madoff scandal, and the subsequent public criticism of the SEC. This would not be an effective regulatory response, if the SEC had done its job properly, then Madoff would have been caught early on, and this onerous proposal would have never happened.
The SEC has already resolved one of the major problems with the custody rule that eliminated a loophole from registration for certain accounting firms with the PCAOB that Madoff’s accountant used to avoid detection.
The Ponzi scheme and others resulted from lack of aggressive enforcement from FINRA and the SEC of current rules, and ignoring repeated warnings from the media and whistle blowers. The SEC should hold FINRA accountable for its shared oversight of Madoff in conducting the Ponzi scheme for decades as a B/D before registering two years ago as an investment advisor. These Ponzi schemes had nothing to do with fees deducted by investment advisors. As far as I am aware, there have been no systematic problems in this area, so this proposed regulation would be unnecessarily burdensome for me as a small, independent, dually registered advisor.
The new surprise audit requirement would add additional cost to my business that I would be obliged to pass onto my clients. Also, it takes time away from what I do, in the past nine months I have spent every waking moment comforting and assisting my clients. The clients would be hurt by the fact I have to turn my attention from then to talking to the auditors.
So if you want to enhance consumer protection, I would support Congress giving more money to the SEC to hire and train additional examiners to increase the audit cycle of investment advisors. But, for heaven’s sake, make those auditors do their job, and not let another Madoff slip through their fingers.
Lynn M. Vance, CFP
Center for Financial Management One, LLC