November 5, 2010
I have served as a registered representative of a well-known broker-dealer for more than 15 years, I would like to comment on the proposed new rule on mutual fund distribution fees and confirmations.
I was pleased to learn that the Securities and Exchange Commission agreed that 12b-1 fees for mutual funds should be continued. These fees provide financial advisors with the resources to provide ongoing service and support to clients, including incidental investment advice, which is vital to the client's success.
What I understand is that the proposed new Rule 12b-2 would permit investor servicing fees on-going based on assets of up to 0.25% for the same purpose as they are currently charged with 12b-1 fees. The new 12b-2 rule being proposed limits the length of time additional asset-based charges could be received replacing the current arrangement of shareholders paying asset-based charges through the fund for as long as they own the fund. I support the proposal because my clients want and expect to receive ongoing service and support for a very low cost to them.
I do, however, oppose the proposal of capping mutual fund C shares asset-based sales charges. What this would do is promote advisers to churn the account when "C" shares reach the maximum time allotment, offering the client a new fund family or perhaps another variable product or asset-managed fee account. In some cases, the client may end up paying more in fees and expenses than they currently do. This would defeat the SEC's goal of protecting investors by limiting fund sales charges.
Another concern is the change in Rule 10b-10 from the Securities and Exchange Act of 1934 for mutual fund confirmation statements. I believe new fee disclosure details should be made before my client makes the purchase, and not on the purchase confirmation statement. The fund's prospectus is the appropriate place for such disclosures in the text of the proper factors to consider before an investor makes a mutual fund purchase.
Also of concern to me is the proposed 12b-2 rule that offers broker/dealers the option of establishing their own sales charges. This would be an extremely poor decision and I strongly oppose this option. By allowing a broker/dealer to established their own sales charges, it would encourage advisers to seek out firms which offer the best compensation, and not take into consideration the best investment option or approach for the client. It could encourage and rewarded advisors based on transactions and not needs. It could reduce the incentive for advisors to provide service and incidental investment advice. Over time, it would dramatically affect fund companies seeking market share to offer competitive commissions to aquire new business.
As someone who heavily works with middle-class people and investors, I am very concerned with the proposed changes in 12b-1 fees. Thank you for the opportunity to express my views.