The Financial Planning Association

FPA Government Relations Office
1615 L Street, N.W., Suite 650
Washington, D.C. 20036
Voice: 202.626.8770
Fax: 202.626.8233


February 23, 2004

Jonathan G. Katz
U.S. Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0609

Re: Release Nos. 33-8349 and 34-48952; IC-26313; File No. S7-29-03; Concept Release: Request for Comments on Measures to Improve Disclosure of Mutual Fund Transaction Costs

Dear Mr. Katz:

The Financial Planning Association ("FPATM")1 is pleased to submit comments with respect to the SEC's consideration of measures to improve disclosure of mutual fund transaction costs. FPA has long held that belief that mutual funds should be required to provide meaningful disclosure of brokerage costs and related soft dollar expenses as part of the overall expense ratio that they provide in fund reports.

Because financial planners play a major role in offering clients a disciplined approach to mutual fund investing, we describe below how the Rule benefits professional advisers in performing due diligence as well as how it benefits the public.2

A. The Role of Financial Planners

Making recommendations to clients -- or assisting clients in their own research -- concerning the selection of suitable investments from the more than 15,900 mutual funds currently available constitutes a major part of the professional services offered by many FPA members. In order to create investment portfolios that assist a client in reaching personal and financial goals, this intermediary function between the mutual fund companies and the investing public requires that financial planners have access to timely and accurate information, and that the fund companies comply with all relevant rules. In this regard, we note that registered investment advisers are subject to disclosure and fiduciary standards of the Investment Advisers Act of 1940, offering a consistent "flow through" of protections to clients holding mutual fund shares. We note further that most FPA members are affiliated with investment advisory firms and are also subject to the professional standards of the CFP Code of Ethics and Professional Responsibility.3

Full disclosure is critical and an expression of FPA's core values. The enhanced disclosure under consideration by the SEC would assist FPA member compliance with Rule 704 of the CFP Code of Ethics, which requires CFP® practitioners to undertake a "reasonable investigation regarding the financial products recommended to clients."4 Improved disclosure would greatly assist financial planners in evaluating fund options for their clients and in satisfying the general requirements of Rule 704. Similarly, Rule 201 of the Code of Ethics requires CFP practitioners to "exercise reasonable and prudent professional judgment in providing professional services."5

B. Improved Disclosure of Transaction Costs

Although transaction costs are taken into account in computing a fund's total return, they are not included in a fund's expense ratio. This is permitted under GAAP because transaction costs are either included as part of the cost basis of the purchased securities or subtracted from the net proceeds of securities sold. While these costs are ultimately reflected as changes in gain or loss in the fund's financial statements, there is no clear and direct disclosure. Further, while portfolio turnover rates and dollar amount of brokerage commissions reflect on transaction costs, this limited and tangential disclosure is inadequate.

FPA has long been on record in support of including transaction costs and related soft dollar expenses as part of funds' expense ratios. In providing this additional information, we suggest the following two guidelines. First, all quantifiable transaction costs -- with the single exception of opportunity costs -- should be included in the fund prospectus. Second, in order to be meaningful, the disclosure must be provided by funds in a consistent manner that is simple for an investor to understand.

Despite our support of these changes, we note that this additional disclosure may have little effect on consumers' investment decisions. Anecdotal evidence from financial planners suggests that the vast majority of shareholders fail to read fund prospectuses.6 Absent the professional services offered by financial planners and/or significant simplification and clarification of fund prospectuses, adding to an investor's reading burden is likely to be of little additional value. FPA, nonetheless, believes that additional disclosure about transaction costs should be included in fund prospectuses.

We would be pleased to provide any additional information requested by the SEC. Please do not hesitate to call the undersigned at (202) 626-8558.


Neil A. Simon, Esq.
FPA Director of Government Relations


CFP®, CERTIFIED FINANCIAL PLANNERTM and the federally registered CFP (with flame logo) are certification marks owned by the Certified Financial Planner Board of Standards, Inc. These marks are awarded to individuals who successfully complete the CFP Board's initial and ongoing certification requirements. A subsidiary Board of Professional Review is responsible for disciplinary actions resulting from violations of the Code of Ethics.