NASAA Urges SEC to Exclude from Surprise Audit RIAs with Custody Solely Due to Automatic Deduction of Fees

August 09, 2009

In response to the proposal by the U.S. Securities and Exchange Commission (“SEC”) to require federally registered investment advisers with custody of client funds or securities to undergo an annual surprise audit by an independent public accountant, the North American Securities Administrators Association (“NASAA”) surprisingly weighed in favor of the investment advisory industry.

NASAA urged the SEC to exclude from its proposed surprise audit requirement those investment advisers that have custody of client assets solely due to the authority to withdraw investment advisory fee. NASAA explained that “we believe these accounts are less likely to be subject to abuse and could reasonably be excluded from a program of annual surprise examinations by an independent CPA.”

Considering that NASAA is typically less receptive to the investment advisory industry’s concerns as compared to the SEC, this position by NASAA definitely adds legitimacy to the argument of many registered investment advisers that the SEC’s proposed independent CPA surprise audit requirement is too expensive and overly broad.

Posted by Bryan Hill
Labels: Custody