Tag Archives: custody

Weitzman Sentenced To 97 Months In Prison; Be Vigilant Against Fraud

FPPad has followed the story of Matthew Weitzman beginning in April 2009 when charges of “certain irregularities in a limited number of client accounts” were brought against him.

See our previous entries:

According to Ron Leiber at the New York Times (Ron and his family were former clients of Weitzman), Weitzman was  sentenced to 97 months in prison yesterday.

Click here to read the entry in the New York Times Bucks blog.

Again, I can only stress how important it is to have clearly defined processes as to how your firm fights fraud. Take the opportunity to tell clients what you do and how you keep staff responsible for the safeguarding of client assets. A dose of proactive communication can go a long way when so many stories are being published about advisers accused of stealing from their clients.

Surprise Audit Provision Dropped From New SEC Custody Regulations

secAbout six months ago in response to the uproar over the Bernie Madoff fraud, the SEC proposed updates to the custody rule that would require RIAs who debit fees from client accounts to be subject to surprise audits.

Needless to say, this proposal did not go over well, especially when costs for surprise audits were estimated to be north of $8,000.

See previous posts on FPPad: Proposed SEC Custody Rules Could Cost Advisers Extra $8,100 and SEC Surprise Audit Proposal Likely to be Dropped According to FPA.

Yesterday the SEC passed new custody regulations, and the surprise audit provision for RIAs who only debit fees was dropped. In addition, the SEC published a custody matrix, if you will, defining the different adviser arrangements along with their respective duties and responsibilities.

The folks over at RIABiz posted more about the custody provisions, plus they included the custody matrix chart for reference.

Click here to view the custody matrix on the RIABiz website.

Surprise Audit Costs Severely Underestimated by SEC According to SIFMA

I wrote back in May about the SEC’s proposal to require surprise audits of Registered Investment Advisers who have custody of client assets. The proposal also clarified that custody requirements apply to advisers who withdraw advisory and/or management fees directly from client accounts. Therefore, advisers with custody of client funds would be required to undergo surprise audits, estimated by the SEC to be $8,100.

The Securities Industry and Financial Markets Association (SIFMA) recently said not so fast. $8,100 is severely underestimated.

According to SIFMA, estimates for surprise audits of RIAs who custody funds are as high as $282,800. You read that right: nearly three hundred thousand dollars.

Obviously the exact estimate depends on the amount of assest under management and the number of accounts, custodians, and securities maintained by an RIA.

For more information on the cost estimates, refer to this article at InvestmentNews.

Follow Up to Fraud Prevention Practices

This is a quick follow up to my post Anti-Fraud Measures Your Practice Needs where news of “irregularities” in accounts managed by Matthew Weitzman of AFW Wealth Advisers was highlighted in the New York Times.

It turns out the Mr. Weitzman is facing very serious charges. Here’s a snip from an InvestmentNews article released today:

Earlier today, the U.S. attorney’s office for the Southern District of New York in Manhattan and the New York office of the FBI said they charged Matthew Weitzman, 43, of Armonk, N.Y., with one count of investment adviser fraud and six counts each of securities fraud and wire fraud.

He also faces charges from the Securities and Exchange Commission over the alleged theft of client funds.

Click here to view the full story at InvestmentNews.

It’s unfortunate to see anyone take advantage of clients, and it’s even worse when the individual in this case once had an affiliation with NAPFA, a group of respected fee-only financial advisers.

So again, take this opportunity to communicate to your clients about the processes and procedures you have in place to prevent fraud and protect your clients’ interests.

SEC Surprise Audit Proposal Likely to be Dropped According to FPA

Last week I wrote about the proposed changes published by the SEC to require surprise audits of investment advisers who debit fees directly from clients’ accounts, falling under the requirements of custody. The proposed changes were estimated to cost each adviser office on average of $8,100 a year in compliance costs.

This proposal, just barely three weeks old, seems likely to be rescinded according to this Financial Planning article published by Donna Mitchell.  In it she writes:

Unofficial reports from the SEC, however, now suggest that the regulator is dropping the third-party compliance audit requirement for advisors, according to the Financial Planning Association’s Web site.

To read the full article, click here.

Proposed SEC Custody Rules Could Cost Advisers Extra $8,100

secUpdate: See the article FPA, NAPFA and IAA to fight SEC’s pop-quiz proposal from InvestmentNews.com where group officials say “that the proposal is misguided and would saddle advisers with unnecessary costs.”

It should be no surprise to financial advisers following the Madoff Ponzi scandal that the SEC recently issued proposed rule changes to custody requirements. The release, IA-2876 (click to view PDF from SEC.gov), addresses custody requirements of client funds and securities and is open for a 60-day comment period through July 28, 2009. Should the proposed rules be adopted, advisers may face additional compliance fees of $8,100 on average.

Surprise Examination Proposal

The SEC proposes that advisers with custody of client assets must undergo an annual surprise examination by an independent public accountant, regardless of whether or not assets are held by a qualified custodian. The premise behind the surprise examination requirement is to provide “another set of eyes” on client assets to prevent fraud and misappropriation of client funds by registered advisers.  Reports of theft and fraud by advisers have plagued the SEC since the Madoff scandal erupted in late 2008. So what does this mean for advisers meeting the custody definition?

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Anti-Fraud Measures Your Practice Needs

A story from New York Times personal finance columnist Ron Lieber quickly traveled through the Twitter universe and landed in my inbox.  Lieber is a client of NAPFA-member AFW Wealth Advisors and was informed by the firm that one of their advisers, Matthew Weitzman, is under investigation for “certain irregularities in a limited number of client accounts.”

See the NYTimes article here.

Also, see coverage from Roger at The Passionate Planner and Andrew Gluck at Advisor Blog Central.

Let’s face it. Your clients may very likely see this article. Once they do, they’re going to ask you what you are doing to protect their accounts from this kind of fraud.

How Advisers Can Steal Funds

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