August 19, 2010
Elizabeth M. Murphy
Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549-1090
Subject: File Number 4-606
Dear Ms. Murphy:
I am a Registered Representative (Series 7) and an Investment Adviser Representative (Series 66) affiliated with an Independent Broker Dealer. I have 88 retail clients and manage $6,200,000 in assets. I have been practicing under both licenses for four-and-a-half years. At age 35, I am a member of the next generation of advisers.
While it is true that I feel over regulated, I think better regulations (not more) would help both me and my clients. With your help in establishing these reforms, I will be able to offer all of my clients the best products for their portfolios like I do for my wealthier clients. Presently I am stuck using commission products for smaller clients due to BD imposed (and FINRA encouraged) account minimums of $25,000 for our fee-based program.
Commission products (mutual fund A shares) have high sunk costs, are sticky, and have higher expenses (on average) than no-load products. I end up compromising the portfolios optimization and my manager due diligence process in order to fit within the same fund family. Thus my smallest clients portfolios are handicapped. I want to be able to apply my best advice to everyone. This will also streamline my practice by letting me focus on maintaining the models and applying the fiduciary standard, rather than adapting them to the constraints associated with the commission structure.
I understand you have some specific questions you wanted feedback about:
Do investors understand that these financial professionals are subject to different legal standards with regard to their obligations to customers when they recommend securities?
No, they dont understand. I explain the difference to most of my clients at the first meeting. They are usually shocked and confused to learn that there are two standards: suitability, and fiduciary. They are also often shocked when I explain the details of how my compensation differs in the two cases. It seems most of them have never had an adviser/broker explain how theyre paid. Some balk when I insist on charging them for my work. They sometimes say my old broker never charged for that. Of course, the old broker did charge, just not transparently.
Do investors believe that all those who market themselves as advisers and offer personalized advice should have to act in the best interests of their customers?
Yes, and they distrust the industry because they know that is not the case.
I eagerly await a universal fiduciary standard. I look forward to being regulated by the government (SEC), rather that the industry (SRO).
Jason J. Eaton
Investment Adviser Representative/Registered Representative