Oct. 22, 2023
Dear Securities and Exchange Commission, I am writing to express my concerns regarding the proposed rule on "Safeguarding Advisory Client Assets." While I appreciate the SEC's efforts to enhance investor protections and address gaps in the custody rule, there are several areas where I believe the proposal falls short and warrants further attention. Firstly, my concern lies with the lack of clarity in the definition of digital assets. In an increasingly digital world, it is crucial for the SEC to provide precise guidance on what constitutes a digital asset. The proposal does not offer clear parameters, which could lead to confusion and potential misinterpretation. This lack of clarity has profound implications for the protection of client assets and the overall stability of the market. Moreover, I am deeply concerned about the privacy and safety implications of allowing numerous third parties to have access to my sensitive financial data and social security number. While I understand the need for transparency and oversight, it is imperative that any regulations concerning client assets prioritize the privacy rights and the security of personal information. The proposal should include robust measures to ensure data protection and limit access to client information to only the necessary parties, while also minimizing the risk of unauthorized use or abuse. In addition, I urge the SEC to consider the economic impact of the proposed rule. While investor protection is of paramount importance, it is essential to strike a balance that does not unduly burden investment advisers and stifles competition. The compliance costs associated with the proposed rule could disproportionately affect small advisers and hinder their ability to provide valuable services to clients. Reasonable alternatives, such as simplified reporting requirements for small entities, should be explored to ensure that the proposed rule does not have unintended negative consequences on market participants. Furthermore, the SEC should provide further guidance and clarification concerning the transition period and compliance dates. A smooth transition is vital for investment advisers to adapt to the new regulatory requirements and ensure uninterrupted service to their clients. Clear and concise communication about compliance expectations and deadlines will enable advisers to make necessary adjustments without compromising the fidelity and safety of client assets. Finally, I appreciate the SEC's consideration of the economic analysis and the attempt to quantify the potential costs and benefits of the proposed rule. As these estimates may vary depending on individual investment advisers' practices, it is crucial to ensure that the analysis accounts for diverse industry practices and does not overlook any significant effects, both positive and negative. Additionally, the SEC should actively engage with industry stakeholders to gather feedback on potential alternative solutions and identify any potential overlooked benefits or costs associated with the proposed rule. In conclusion, I urge the SEC to carefully consider the concerns I have raised regarding the proposed rule on "Safeguarding Advisory Client Assets." By addressing the issues of clarity, privacy, economic impact, and communication, the SEC can strengthen investor protections while fostering an environment that encourages competition and innovation in the advisory industry. Thank you for your attention to these matters. Sincerely, Derek