May 22, 2009
To Whome It May Concern:
I believe your suggestion to require a suprise audit of all financial advisors that have client fees directly deducted from portfolio account, especially if those accounts are with an independent custodian such as Charles Schwab or Fidelity, is wrong and ultimately bad for clients. Those custodians already provide a number of checks and balances. The clients also have an opportunity to review their statements on a monthly basis to determine if money has been debited inappropriately.
I further believe that you are underestimating the cost to the advisor. We have a regularly schduled audit each year and our cost our cost is approximately $20,000 per year. Other costs that would be required is the time the advisor or staff would have to spend with the auditors. Additionally, the firm would have to change their bookkeeping method to accrual basis from cash basis. Having clients pay with checks or credit cards would also increase the cost to the advisor. If clients pay by check, the firm's accounts receivables will increase, the slower payment of fees will cause more advisor or staff time to follow up on the receivables and will have a negative effect on profitability. If the clients pay by credit card, there will be credit card processing fees that will be incurred. On $1,000,000 of client fees, the credit card fees could be as much as $30,000.
So instead of doing your jobs properly, you are passing the buck to the advisors to do your job for you. This increased bureaucracy will lead to additional costs and inefficiency. In the end, the clients will have to pay more for advisory services as advisors pass along the additional costs they are forced to incur.
I am sure a few years down the road there will be a scandal about advisors overcharging clients and no one will in congress will admit to knowing why. After the appropriate amount of committee meetings and hearings there will be some mandate for looking into advisors and why they are charging their clients so much.
I am pleading with you to stop the growth of government bureaucracy and reject the idea of subjecting advisors to random audits.