October 21, 2010
To Whom It May Concern,
I have been a Financial Advisor for 32 years. I have never, I repeat NEVER, had a compliance problem of any kind. You are welcomed to check my record.
I keep my client's interests foremost.
I use C shares mutual funds in my practice extensively.
Having said that, I must comment on the SECs 'proposed measures to improve regulation of fund distribution fees.'(12b-1) There is no question about the fact that, if this measure is adopted in its present form, you will be creating far more of a conflict of interest between financial advisors and their clients. This is a very big mistake and will harm the public at large over time in significant ways. This type of legislation, which will change compensation under the "C" share structure and 12b-1 distributions, all but guarantees that many, many brokers and financial advisors and insurance agents will not take as good care of their clients. "C" shares and 12b-1 fees will very significantly diminish, or go away, over time and the money that would have gone into C shares (or is in places where compensation would not be paid to the advisor) will generally be moved to separately managed accounts and other fee based accounts or moved to the larger commission "A" shares and moved in "A" shares every few years or so. Brokers and financial advisors will find reasons (and brokers WILL find good reasons) to do this, otherwise they will not get paid (hence the greater conflict of interest between broker and client). No broker or financial advisor is going to work for minimal amounts or for nothing overtime
Because of "C" shares I am willing to do more work and give greater service / time to clients. They know it and appreciate it. I have VERY RARELY had a client leave my practice.
On a another front "C" shares create a far larger platform of funds to meet the clients needs... IE I am not bound by one family of funds as I would be if I used "A" shares because "C" shares are so much less attractive under this new proposed legislation. With "C" shares I can really look at performance etc. and truly tailor the best program available from many MANY families of funds, at no additional cost to the client on an ongoing basis. "C" shares also create far more flexibility in the ongoing management and monitoring of portfolios. Advisers can make sure that clients are in the highest rated, (Morningstar etc.) and best preforming funds on a long term basis and move appropriately if necessary as often as is necessary were ever is necessary. In addition clients are not subjected to variance of quality of funds in one fund family (IE good bond funds not so good stock funds etc.).
I realize that it is possible that you will grandfather existing C shares. If you do not grandfather existing shares then it will cause great upheaval throughout the markets as money is exiting C shares. Even this "grandfathering" severely limits the broader platform that "C" shares NOW offer (IE.. no new business under proposed new legislation with long term compensation).
I believe that signed better / far more formal disclosure to the clients, every year (or every 2 years) that clearly spells out the fees involved and the differences in compensation with other classes of shares (there should be strict rules on how and what is sent annually). Also you (SEC / Congress) should enforce that it is called an Annual Fee "C" shares statement and must be sent alone not buried / hidden in other mailings to clients and must be signed and returned .....also in the future Broker Dealers should have to put ALL ("A and "C" shares etc. etc.) compensation on to trade confirmations just like they do with most individual equity / stock transactions, as well as STRICTER FULL upfront disclosures (which are generally already in place, but should be far greater). In this way clients can make much better informed decisions and choose wisely on a continual basis with their investment counselors.
It is true that 12b-1s may not be the appropriate name but the ability to service clients on an ongoing basis or manage money on an ongoing basis for a fee is one of the tenets of our financial system and helps the public GREATLY.... I am sure that some kind of compensation can be developed by the SEC / US Congress where money can be managed in mutual funds on a continual basis where there is long term ongoing reasonable compensation. I understand that it is currently not fair to call these 12b-1s "cost of marketing and selling mutual funds " fees, they really are a service oriented item that may need some adjustments, but NOT long term general elimination of "C" shares, which is what will happen if the current proposed legislation is adopted and passed. The United States public will be harmed in the long term in SIGNIFICANT ways if this legislation is passed in its current form....Because their advisers will suddenly be presented with a conflict of interest....GUESS WHAT THEY WILL CHOOSE?... OF COURSE SELF INTEREST IS THE ONLY OPTION IN THE END
THIS IS A KEY FACT BECAUSE....NO MATTER HOW HARD YOU TRY YOU CAN NOT LEGISLATE MORALITY
Don't make a colossal mistake for the American investing public...
Kenneth H Scribner