Oct. 30, 2023
Dear Sir/Madam, I am writing in response to the proposed rule, "Safeguarding Advisory Client Assets," filed by the Securities and Exchange Commission (SEC) on Aug. 23, 2023, seeking to enhance investor protections and address gaps in the custody rule in the advisory industry. I have carefully reviewed the proposed rule and amendments, as well as the economic analysis, paperwork reduction act analysis, and the initial regulatory flexibility analysis accompanying the proposal. While I recognize the SEC's intention to safeguard client assets and improve investor protections, I am concerned about the potential overreach of the SEC's regulatory authority in certain areas. One area that requires careful consideration is the scope of the proposed rule. It is crucial to ensure that the SEC's regulatory authority does not encroach on areas that should be regulated by other agencies. For example, the proposed inclusion of specific provisions for crypto assets raises concerns about regulatory overlap, as these assets may fall within the purview of other regulatory bodies, such as the Commodity Futures Trading Commission or the Financial Crimes Enforcement Network. Furthermore, while the SEC's proposed rule strives to enhance the protection of client assets, it is important to strike a balance between investor safeguards and the burdensome compliance costs incurred by investment advisors. The proposed amendments to Rule 204-2 and Form ADV, in particular, may lead to a substantial increase in compliance burdens, including recordkeeping and reporting requirements. These additional burdens should be carefully evaluated to ensure that they do not impede the efficiency, competition, and capital formation within the advisory industry. In addition, the proposed rule acknowledges the challenges faced by investment advisors in demonstrating exclusive control over client assets, particularly in cases where qualified custodians may not be able to maintain certain types of assets. I commend the SEC's attempt in addressing these challenges by requiring enhanced recordkeeping, separation of duties, and regular reviews. However, it is crucial that the SEC allows for flexibility in how investment advisors can safeguard such assets, as rigid requirements may inadvertently stifle innovation and hinder the efficient management of client portfolios. Lastly, I would like to emphasize the importance of coordination and harmonization across regulatory bodies, especially in light of the potential regulatory overlaps and varying practices among investment advisors. Collaboration with other agencies should be encouraged to ensure a comprehensive approach to protecting client assets, without burdening advisors with duplicative or conflicting rules. In conclusion, while I applaud the SEC's efforts to enhance investor protections and address gaps in the custody rule, I urge the Commission to carefully consider potential areas of overreach and unintended consequences. A balanced and measured approach is necessary to strike the right balance between investor safeguards and the compliance costs shouldered by investment advisors. Coordination and harmonization with other regulatory bodies are essential to avoid regulatory overlaps and provide a coherent framework for investor protection. Thank you for considering my comments. I encourage the SEC to exhibit openness and attentiveness to suggestions from industry professionals and other interested parties during the comment period. I look forward to continued engagement to promote the best interests of investors and the sustainable growth of the advisory industry. Should you require any further information, please do not hesitate to contact me.