From: Archie Allen
Sent: Tuesday, August 13, 2002 4:00 PM
Subject: [Release No. IA-2044; File No. S7-28-02] Comments about Desire Never to Have Custody
Comments concerning "Proposed Rule:
Custody of Funds or Securities of Clients by Investment Advisers"
[Release No. IA-2044; File No. S7-28-02]
From: Archie Gray Allen, Jr. Investment Advisor, 747 Summit Street, Winston-Salem, NC 27101
Mailing Address: Archie Gray Allen, Jr. Investment Advisor, P. O. Box 394, Pfafftown, NC 27040
My comment concerns desire to continue procedure for advisor bills sent directly to the custodian holding the client's funds and securities account for payment, does the advisor have custody for purposes of Rule 206(4)-2 [17 CFR 275.206(4)-2] and Form ADV Part I, Item 13?
The following seems to me to be a reasonable and safe procedure which I would like to see remain. Incidentally, my clients' custodians send monthly statements to each client and to me as well.
***Please preserve the current treatment of these fee arrangements listed below:
SEC in past said, "The staff takes the position that the advisor will not be deemed to have custody under these circumstances, however, if: (1) The client provides written authorization permitting the adviser's fees to be paid directly from the client's account held by an independent custodian, (2) the adviser sends to the client and the custodian at the same time, a bill showing the amount of the fee, the value of the client's assets on which the fee was based, and the specific manner in which the adviser's fee was calculated, and (3) the custodian agrees to send to the client a statement, at least quarterly, indicating all amounts disbursed from the account including the amount of advisory fees paid directly to the adviser." Your footnote number 7 said see Lawwill Sena & Weller Inc. (pub avail. April 11, 1983). This position was firs established in the Investment Counsel Association of America, Inc. (pub. Avail. July 9, 1992)
My reference to your language where I would like clarification about the fee procedure is listed below
"The second example clarifies that an adviser has custody if it has the authority to withdraw funds or securities from a client's account.21 An adviser with power of attorney to sign checks on a client's behalf, to withdraw funds or securities from a client's account, or to dispose of client assets for any purpose other than authorized trading has access to the client's assets.22 Similarly, an adviser authorized to deduct advisory fees or other expenses directly from a client's account has access to, and therefore has custody of, the client funds and securities in that account.23 These advisers might not have possession of client assets, but they have the authority to obtain possession."