Expenses for a surprise audit of trust accounts will vary depending on several factors, including the number of accounts for which an advisor serves as trustee and how many third-party custodians are in possession of the funds.
A smaller advisor may be a trustee for just a few accounts and is likely to use a single third-party custodian. "If all the assets are held by a single custodian, it's not that difficult for the auditor to look at those accounts," says Dallett.
Michael Hartnett, a certified public accountant in Winchester, Mass., said auditing a small number of accounts would take about two full days and cost about $4,000. Many accounting firms aren't likely to discount fees, he says, because of the risks involved to provide the service.
Knut Rostad, regulatory and compliance officer for Rembert Pendleton Jackson, a registered investment adviser in Falls Church, Va., says he's not concerned about the surprise audits or the expense. His firm acts as trustee for about 10 accounts among a total of around 500. All of the firm's accounts are typically in possession of a single qualified custodian, he said.
Advisors, however, could expect significantly higher fees if they are trustees of numerous accounts, use multiple third-party custodians, or have actual custody of the funds, instead of relying on qualified custodians that issue regular statements.
The SEC will study the impact of surprise audits on smaller advisors who are authorized to obtain possession of client funds and whose client assets are maintained by third-party custodians, according to the agency's final rule. Its review will begin after the first round of audits are complete.
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