June 22, 2007
Is business entertainment really the biggest concern you have? Instead killing a nat with a sledgehammer, why don't you tackle a bigger issue that has plagued the industry for decades and has been ROUTINELY ignored by the SEC and NASD. That issue is the fact that you allow major broker-dealer's to prevent the transfer of certain mutual funds to a new broker dealer. ARE YOU SERIOUS? How can that be in this day and age? This practice forces clients to sell funds with tax consequences and incur CDSC because they want to change firms. If you REALLY want to help the investor, then ban this practice immediately so that clients can move any fund to any firm.
Notwithstanding your indifference to the above, I am writing to express my concerns about the NASD's proposal to require broker-dealers to develop procedures for their financial advisors that define appropriate and inappropriate forms of business entertainment, serve to detect and prevent business entertainment intended to compel an employee to act in a manner inconsistent with the interests of his employer, and provide for appropriate training. The proposal would also require financial advisors to keep detailed records of business entertainment involving expenses in excess of $50. CAN YOU REALLY BUY A MEAL FOR $50 ON THE EAST OR WEST COAST?
My concern about the proposal is that it imposes significant costs on financial advisors who do not engage in business entertainment that is likely to cause a customer representative to act in a way that is inconsistent with the best of interest of the customer. It does so by poorly defining the terms 'customer' and 'customer representative' to include small business accounts and employees who have no control over securities business decisions. In addition, it imposes a significant recordkeeping burden on financial advisors and their broker-dealers for very small business entertainment expenditures. Since the abuses that the proposal is targeted at occur in the institutional context, I believe the proposal should impose the burdens of compliance on those firms who provide business entertainment to institutional accounts.
In conclusion, I respect the NASD's concerns about the use of business entertainment to encourage employees to act in a manner inconsistent with their employer's best interests. However, I believe that their current proposal is poorly designed and will impose huge burdens on financial advisors who are not likely to engage in troublesome business entertainment.
Mr. Thomas Conway
Royal Alliance Associates