August 7, 1998 Jonathan G. Katz, Secretary Securities and Exchange Commission 450 Fifth Street, N.W., Stop 6-9 Washington, D.C. 20549 Re: File No. S7-20-98 Investment Adviser Year 2000 Reports Dear Mr. Katz: The Institute of Certified Financial Planners[1] (the "Institute" or "ICFP") appreciates the opportunity to provide comment on a proposed new rule and disclosure form that certain advisers registered with the Securities and Exchange Commission (the "Commission") would be required to file in connection with preparations for the Year 2000 computer problem. The Institute is very supportive of the ongoing work of the Commission to assess and respond effectively to the Year 2000 problem. The proposed Rule requiring two detailed Y2K reports by most investment advisers prior to January 1, 2000, is an important part of this effort. We offer several comments with respect to the Commission's request for comments. Attestation Release No. IA-1728 (the "Release") asks commenters whether an attestation by an independent public accountant should be required. The ICFP is opposed to attestation of systems by an independent public accountant because of the significant costs involved and because a computer technician can accomplish the same purpose at a much lower cost. The estimated outlay for a complete Y2K audit will vary, depending upon the size of the financial planning office, from a minimum $1,750 for a small, one-person firm, to $7,000 or more for a larger firm.[2] Not only would this require the services of a CPA or other experienced public accountant, it likely would require the expertise of an accountant who is certified to analyze computer systems. The going hourly rate in the Washington, D.C., area for a Certified Information Systems Auditor is about $250 an hour. Notwithstanding the Release's comment that small advisers would be able to complete Form ADV-Y2K in only a few minutes, it does not take into account the related systems testing costs associated with the reporting requirements. The Institute estimates the testing element would require five to 10 hours at an absolute minimum for a small advisory firm, in addition to the one to two hours estimated by Commission staff for completing Form ADV-Y2K. [3] Testing costs also assume that the auditor is already familiar with the software systems employed by the adviser. It does not include the adviser's time needed to provide the accountant with information needed to make the audit. We do not believe a technical audit is necessary if the adviser has taken the appropriate measures to conduct due diligence with in-house or third-party computer technicians as well as providing full disclosure of any potential problems to clients. Multiple System Assessment The ICFP concurs with the approach proposed by the Commission in quantifying Y2K readiness of systems critical to the advisory firm. We believe that a single measure of all systems is a reasonable approach for estimating overall Y2K preparedness compared to individual system assessment. Since even a small financial planning practice typically has at least five separate software systems, estimating system-by-system improvements is impractical since system functions would be difficult to compare between all registrants. Disparate percentage estimates per system, weighted subjectively by each individual firm, would not provide the kind of Y2K compliance assessment sought by the Commission and the Congress. Form ADV-Y2K Instructions on Bilateral Testing The ICFP urges the Commission to improve the clarity of the Form ADV-Y2K instructions in one important area, and that involves the implication that mandatory point-to-point testing is required as part of the proposed Rule's reporting requirement. The greatest area of confusion for small independent registrants concerns the extent to which the adviser may be required to perform bilateral testing. As a practical matter, ICFP members are not in a position to demand third-party custodians, such as mutual fund complexes, money managers, trust companies, insurance home offices, or broker-dealers engage in bilateral testing. CFP practitioners also may rely on service bureaus, from whom they receive the third-party data transmissions, for testing these data links with the other sources. To the extent that point-to-point testing is made available to small firms or their service bureaus, the Institute would encourage its members to take advantage of these opportunities. Form ADV-Y2K instructions, however, should make clear that the proposed Rule requires the registrant to report system- wide Y2K status and any remedial activities, but specify that such point-to-point testing is not mandatory as long as information material to the adviser's business is disclosed in the Y2K form as well as under the so-called Brochure Rule. In other words, an advisory firm that has carefully performed internal hardware and software testing for Y2K dates, and that has created a Y2K file for monitoring service bureaus' or other third-party vendors' updates of their Y2K preparedness, should feel confident that it is in compliance with the proposed Rule as well as the anti-fraud provisions of the Investment Advisers Act of 1940 (the "Act"). They should not be misguided by the instructions into believing that bilateral testing is required by every adviser with every vendor. If led to believe that testing is required, such activity would be an onerous, often impractical, and an unnecessary burden for Certified Financial Planner practitioners and their outside vendors. Question 7 of Part I, and in particular, the reporting requirements of 7(e) with respect to bilateral testing, is unclear, at best, in this context. Question 7(e) requires disclosure of the adviser's progress in bilateral testing of critical systems, but implies mandatory testing of such systems by stating, "If not completed, testing expected to be completed by: (date)." The instructions to Form ADV-Y2K should clarify that reporting of system preparedness does not necessarily mean the adviser must perform all of the activities listed in Form ADV-Y2K, although any functions which have not been corrected and that may have an material effect on the adviser's clients must be disclosed as detailed in the SEC's previous Y2K releases such as Staff Legal Bulletin No. 5. Given the saturation coverage of Y2K problems by the mass media, clients are already starting to ask CFP licensees about the Y2K implications for their investments. We would rather rely on the business judgment of the adviser that certain remedial actions must be taken, and appropriate disclosure made, in order to retain their clients' confidence and comply with the anti-fraud provisions of the Investment Advisers Act of 1940. ________________________ The ICFP would be happy to discuss the foregoing in greater detail with the Commission and any additional requests for information. In that connection, please feel free to contact the undersigned directly at 303.759.4900, ext. 129. Sincerely, Duane R. Thompson Director of Government Relations **FOOTNOTES** [1]: The Institute of Certified Financial Planners is a Denver-based professional organization representing approximately 13,000 CFP licensees and candidates in the United States. The ICFP also serves as a resource to federal and state agencies on regulatory issues related to financial planning. [2]: We consider this to be a conservative estimate. One Ohio member with his own small practice stated that that his CPA told him he would have to charge $5,000 to issue an "attestation" in part because of the associated liability. Further, this cost does not include the substantial amount of the adviser's time in providing all of the information to the CPA, which may require up to 20 hours. CFP practitioners' hourly fees, for example, are in the $100 to $125 range. [3]: Typical software systems used by a Certified Financial Planner practitioner in a small firm include: 1) Windows 95, '98, or NT - sometimes all three if there is more than one computer in the firm; 2) a portfolio management system; 3) an asset management system; 4) a financial planning system; and 5) a trading system.