The CFP Board of Standards says some advisors should be exempt from a proposed SEC rule that would subject advisors to surprise audits if they have custody of client assets.
In a recommendation submitted to the commission, the board states that the audits should not be required of advisors who custody assets for the sole purpose of drawing fees from client accounts.
The board also requested that the SEC exempt advisors who use independent custodians, such as Schwab Institutional and Fidelity, to custody and report on client assets.
The board noted in its letter to the SEC that many of its 60,000 CFP certificants use independent qualified custodians to hold client assets and do not have custody of the assets, other than to withdraw their fees from those assets.
"Our experience in overseeing such advisors as CFP certificants has shown that they do not pose a risk of misappropriating client assets," CFP Board wrote. Noting that independent custodians send account statements directly to clients, the board said, "This practice prevents the adviser from manufacturing false account statements."
As an added protection for clients, the CFP Board recommended that the SEC require exempt advisers to send a statement to their clients listing their annual fee and itemizing the fees that they have deducted from client accounts.
"This will serve as an additional check on such advisers' activities, and will provide clients with the ability to compare custodian statements with their advisors' statements," the letter said.
Under the SEC's proposed amendments to the custody rule of the Investment Advisers Act of 1940, all registered investment advisers with "custody" of client funds and securities would be required to have an independent public accountant conduct an annual surprise examination to verify those client assets. Under the proposal, "custody" would include arrangements in which an advisor is authorized to withdraw client funds or securities held by a custodian upon the adviser's instruction to the custodian.