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  • Writer's pictureASA Newsroom

ASA Submits Comments on SEC Proposed Rule for Safeguarding Advisory Client Assets

WASHINGTON, DC – The American Securities Association (ASA) today filed a comment letter raising concerns with the U.S. Securities and Exchange Commission’s (SEC) proposed Safeguarding Advisory Client Assets Proposal amending the current custody rule.

“ASA strongly supports investor protection and securing client assets. However, the Proposal would unintentionally restrict the array of advisory services accessible to retail investors, increase expenses for those same investors, and encourage a movement towards industry consolidation for qualified custodian services,” said ASA General Counsel & Head of Fixed Income Policy Jessica Giroux. “The potential to encourage industry consolidation and hinder investors’ ability to make informed decisions about their investments far outweighs the potential and limited benefits of the Proposal.”

In the letter to the SEC, ASA outlined numerous concerns associated with the Proposal and made specific comments in the letter which are highlighted below:

I. General Comments. If implemented without amendments, the Proposal will substantially encumber the capacity of our member firms’ financial experts to serve advisory clients and hinder their role as a recognized custodian.

II. The Proposal is Too Broad. The Proposal justifies new rules by pointing to significant cryptocurrency developments, but its broad definition of "custody" instead captures a wide range of assets beyond cryptocurrencies. Additionally, categorizing every discretionary relationship as a custodial one is problematic because discretion does not always equal custody.

III. The Proposal is Burdensome for Small & Mid-Sized Advisers. The Proposal’s requirements will disproportionately burden small and mid-sized advisers, diverting resources from investor services and innovation. Qualified custodians may demand significant compensation or reject these conditions, passing the costs to advisers and clients. As a result, some advisers may impose account minimums, limiting access to services for smaller investors.

IV. Negative Impact on Investors. Many individuals lack the expertise and resources for optimal investment decisions, making discretionary investment management services valuable. However, the Proposal increases the cost of providing such services and favors affiliated advisers over independent ones, whichempowers large third-party custodians, could potentially lead to anticompetitive behavior.

V. Regulatory Overlap. The Proposal duplicates existing regulations without showing evidence of their inadequacy. It's crucial to avoid regulatory overlap to prevent financial harm and limitations on product offerings for investors.

VI. Pace of Rulemaking. The SEC should evaluate how this Proposal interacts with other finalized or proposed regulations, particularly in terms of expensive custody audits and related procedures. Further, we express a recurring concern that this regulatory framework exacerbates the transfer of wealth from regulated entities and investors who take financial risks to the professional class of lawyers, consultants, and accountants.

ASA’s comment letter is available here.


About the American Securities Association

American Securities Association, based in Washington, DC, represents the retail and institutional capital markets interests of regional financial services firms who provide Main Street businesses with access to capital and advise hardworking Americans how to create and preserve wealth. ASA’s mission is to promote trust and confidence among investors, facilitate capital formation, and support efficient and competitively balanced capital markets. This mission advances financial independence, stimulates job creation, and increases prosperity. The ASA has a geographically diverse membership of almost one hundred members that spans the Heartland, Southwest, Southeast, Atlantic, and Pacific Northwest regions of the United States.


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