Subject: File No. S7-09-09
From: Robert B Clelland, CIMA
Affiliation: President, Clelland Company, Inc.

June 26, 2009

To the Commissioner and Staff:

I appreciate the request for comments on the proposed changes to Rule 206(4)-2.

As Chief Compliance Officer for a small Registered Investment Advisor, I understand that, under current regulations, our firm is considered to have a form of custody based solely on the fact that, in some cases, we request our securities custodians to deduct fees directly from a client's account. To my knowledge, this is the only thing that would qualify us as taking custody of client assets. Since our fees are taken in arrears on a quarterly basis pre-disclosed to the client with fee calculations shown at the time of deduction and are generally less than 0.75% annually it seems to be quite a stretch to define this as custody of assets. I am concerned that the Commission seems to be willing to accept this limited and confusing definition of custody of securities.

The newly proposed changes would require an annual surprise inspection for advisors who are deemed to have custody over client funds. If the definition is based solely on the debiting of fees, it will create an undue administrative and cost burden to advisors such as ourselves. As a result, we may have to begin directly invoicing clients for their fees, causing them and us additional administrative headaches and paperwork.

We strongly believe in the current system of independent custodians who are responsible for safekeeping of client assets. Advisor access to a client account merely for the purpose of taking a fee could be overseen in other ways. A suggestion: limit the amount that an advisor could take for fees on an annual basis - enforced by the custodian. It could be limited to some percentage, i.e. 2% annually. Fees over that amount could be considered exessive, on the basis that the advisor potentially has access to substantial account assets, and hence, custody. Those advisors with higher fees, could choose to fall under the custody definition or accept the limitation.

The potential for abuses when an advisor takes actual custody of client funds, is clearly an area that the Commission should be concerned with. We just dont believe that it is productive to require this proposed action of surprise audits in order to prevent abuse.

Respectfully submitted,

Robert B. Clelland, CIMA
President and Chief Compliance Officer