June 30, 2009
Dear Sir/ Madam,
I am and have been a member of the Financial Planning Association for more than 20 years. My firm, Brown & Tedstrom, has been a Registered Investment Advisor for the same period of time.
I am writing because I am opposed to the requirement in the proposed amendments to the custody rule that would subject investment advisers to a surprise audit by an accounting firm. There are several reasons that I am against this rule change.
This appears to be a political reaction to the recent criticism that the SEC has received due to the Madoff issues. It does not appear to be appropriate regulatory response. The SEC already resolved one of the major concerns with the custody rule by eliminating a loophole for certain accounting firms with the PCAOB. The Madoff and other Ponzi schemes resulted from a lack of aggressive enforcement by the SEC and FINRA of current rules and ignoring repeated warnings from the media and whistle blowers. The SEC should hold FINRA accountable for its shared oversight of Bernie Madoff in conducting the Ponzi scheme for decades as a broker-dealer before registering two years ago as an investment adviser. The Ponzi schemes uncovered by the SEC had nothing to do with fees deducted by investment advisers. As far as we are aware, there have been no systemic problems in this area and are unnecessary, costly and burdensome, particularly for small, independent investment advisers.
The new surprise audit requirement will add additional costs to my business that will ultimately be passed on to my clients. We are audited annually by our broker-dealer, LPL Financial, and this is quite a time-consuming process. And within the last 18 months we were audited by FINRA and the IRA. All audits resulted in no issues, censures or judgments. We have a very busy practice and any time lost from helping our clients address their investment strategies makes things more difficult for our clients who have already dealt with much difficulty in the face of the current financial crisis.
As an alternative measure, in order to enhance consumer protection, I would support Congress appropriating additional resources to the SEC to hire and train additional examination staff to increase the regular audit cycle of investment advisers.
Thanks you for reviewing my letter and comments.
Peter F Tedstrom, CFP