June 18, 2008
I am writing to express my concerns about the SEC's ongoing review of Rule 12b-1. Middle class Americans need the continuing service, guidance and support that are provided by independent financial advisors to achieve their stated investment goals. One of the concerns that I have is that SEC believes that once a client has bought a mutual fund,paid upfront sales charge,he should just relax. The money will grow on its own in all market conditions and does not need any one to monitor or help any administraton or review of his investments. I think that is a fallacy in thinking. 12b-1 fees provide a tax efficient means to support the continuing service which these clients require for successful investing. The benefits of 12b-1 fees are numerous and include:
.Expanding Investor Choice - The multiple share classes made possible by Rule 12b-1 give investors choices by providing them with options in how they pay their financial advisor. The flexibility offered by Rule 12b-1 allows financial advisors to tailor a portfolio to their client's specific needs.
.Supporting Financial Literacy - Mutual funds send their investors monthly statements, confirmations, prospectuses, annual reports, and other materials. Financial advisors serve the vital role of educators by helping investors to make sense of these essential materials. 12b-1 fees are the compensation financial advisors receive for these efforts.
.Managing Client Expectations - We all know the common mistakes investors make; buying high and selling low, chasing past performance and harboring unrealistic expectations. 12b-1 fees provide financial advisors with compensation to manage their client's expectations and protect them from falling into this common investor traps.
.Insuring Small Accounts Receive Service - Investment advisory services are simply out of the reach of many small account holders. Financial advisors must have another means of being fairly compensated for servicing these accounts. 12b-1 fees provide the mechanism to insure small investors receive the support and service they need to achieve their financial goals.
.Subsidizing Additional Services - Independent financial advisors offer their mutual fund clients a variety of additional services including: consolidated account statements, periodic portfolio review meetings, quarterly newsletters, cost basis research, preparation of tax returns, and consulting on other financial decisions. These important services are made possible by the subsidy 12b-1 fees provide.
I believe that any and all information regarding to the charges should be fully and in easy to understand form should be diclosed to the investors.SEC should more be concerned about how it is charged, how much is reasonable and how it is disclosed and not stress as much as why it is charged. An advisor has an on going cost to service its clients/ customers. Fundamentle tanets of enterpreneurship in a free market society should be respected and be the guiding principle of regulation. The insurance and financial products and services, not just the mutual funds have a trail component. Even other consumer services have the trail component and consumers aware of that.
In conclusion, while it is reasonable to review the investor benefits of 12b-1 fees, it is obvious that the repeal of 12b-1 has the potential to cause great harm to thousands of individual investors who need the support and service of a trained financial advisor. As a result, I urge the SEC to allow Rule 12b-1 to continue to support my efforts to provide needed financial services to middle class American investors pursuing their financial goals.
Sincerely,
kishore shah
Securities America, Inc.