From: Arlene R. Foreman [arforeman@att.net]
Sent: Friday, August 09, 2002 11:22 AM
To: rule-comments@sec.gov
Subject: File No. S7-28-02

I am a Registered Investment Advisor under authority of Florida, because 
assets under management are currently less than $5,000,000.  I wish to 
comment, however, because Florida tends to follow SEC rules in determining 
applicability for its advisors.
 
(1) Regarding custody when clients' securities certificates come to the 
RIA's office: if the client has designated the intended custodian (e/g/ 
TDWaterhouse) as attorney-in-fact on the certificate and endorses that, 
why is this "custody" for the RIA?  Clearly the RIA cannot do anything 
untoward with the certificate in that form.  If this scenario would "not" 
create custody, then perhaps the proposed rule should indicate this as 
a "safe harbor".
 
(2) Regarding pooled investment interests and custody, specifically as it 
applies to investment clubs, or perhaps other forms of partnership:  if the 
partnership agreement specifically prohibits the advisor from withdrawing  
fees or any other funds or securities from the account, and if same can be 
done only by a member of the partnership who is not the investment advisor 
or someone related to or in-the-advisory-business with the advisor, it 
would seem that custody does not occur. Yet no provision for such restrictions 
are proposed.  In such a situation, the advisor's role is compensated, if at 
all, by means totally beyond the advisor's control.  This type of restriction 
would seem an appropriate example to include as guidance in the final regulations.
 
Regarding trusts:  If an advisor serves as trustee, and even has access to 
funds under a limited or general power of attorney, but the documents provide 
that any withdrawals or checks written must be countersigned by a third party 
not related to the advisor, then again it would seem that custody does not occur.  
In this case, the advisor can provide the advisory service for which the client 
contracted, but cannot unilaterally access trust funds or securities, especially 
with the proposed rule of custodial statements to the client.  This is the 
position that was suggested by an SEC examiner, and also would seem an appropriate 
example to include as guidance in the final regulations.
 
As the proposed regulations suggest, situations have changed.  It would be 
beneficial for practitioners to know the situations and alternatives that will 
help them fulfill their clients goals, not just the conditions that would prevent 
them from doing so.
 
Some years ago the IRS promulgated new regulations for IRAs in the form of Q&A, 
so it was very clear what could or could not happen under different situations.  
Perhaps this regulation should be set out in that format, covering the areas 
which have been addressed in prior years by SEC No Action letters.  That way, 
everyone would be very clear on permissible and non permissible actions.
 
Arlene R. Foreman, CLU, ChFC, CFPâ, CTFAä
arforeman@att.net
Ph.: (239) 433-4662
Fax: (239) 433-7738