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AICPA testifies on draft investment advisers bill.

The American Institute of CPAs emphasized the need for reform of the Investment Advisers Act of 1940 to focus on activities giving rise to investment adviser fraud and abuse--namely, holding clients' funds or securities for investment purposes or recommending and selling securities to the same client.

In testimony before the House Energy and Commerce Subcommittee on Telecommunications and Finance, Charles R. Kowal, chairman of the AICPA personal financial planning legislation and regulation subcommittee, generally applauded a discussion draft of a bill by Congressmen Edward J. Markey (D-Mass.) and Rick Boucher (D-Va.).

Titled the Investment Advisers Regulatory Enhancement and Disclosure Act of 1992, the bill would, among other things,

* Direct the Securities and Exchange Commission to conduct a public rulemaking that would result in a formal policy on what constitutes investment advice that is "solely incidental to" the practice of accountancy.

* Provide the SEC with additional funding targeted to investment adviser regulation and inspections.

* Establish a private right of action against advisers who engage in fraud.

An earlier version of the bill, introduced last year by Congressman Boucher as HR 2412, was not supported by the AICPA because it expanded the definition of investment adviser to include all those, including accountants, using the term "financial planner" or similar terms and because it narrowed the current exclusion available to accountants under the 1940 act.

Focus on "root causes." Kowal praised the current draft for focusing on the root causes of investment adviser fraud "rather than the title or titles of the services provided."

Kowal also proposed language to further clarify the draft's statutory exclusion of accountants, attorneys and others whose financial planning services are "incidental" to the practice of their profession.

He said CPAs, including those who provide PFP services, are already "subject to a comprehensive regulatory and self-regulatory framework that governs their practice" and pointed out that CPAs who commit acts discreditable to the profession are subject to a multitiered process of investigation and discipline.

The availability of the exclusion, he added, should be limited to professionals who do not maintain discretionary custody of client assets for investment and who do not receive commissions.

"Regulating services most frequently associated with fraud and abuse will ensure that the burden of compliance with the securities laws, and of the related enforcement efforts, will target those investment advisers whose activities require greater regulatory scrutiny," Kowal said. "CPAs who do not engage in the types of activities that give rise to abuses should be exempted."
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Publication:Journal of Accountancy
Date:Aug 1, 1992
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