March 5, 2004
The recent review of 12b-1 fees should take into consideration that advisors who provide ongoing finanical planning services to their clients depend on these fees to support their practices. Without these fees they would not be able to exist. These fees, especially in reference to C shares, provide a true long term partnership between the advisor and client in that the advisors pay is directly effected by the results/performance of a clients assets towards acheiving their financial goals.
Any good advisor provides full disclosure of all fees, either upfront fees or ongoing asset based fees, to their clients. Many broker dealers currently require a disclosure form be completed for all accounts as new investments are made. This form ensures that the client is aware of all fees and the difference between all share classes available. The most common area of non-disclosure regarding backend fees appears to be with B shares, which I encounter with new clients as they wish to review and or change investments. The elimination of B shares would elminate 95 of this issue as most advisors that sell B shares are transaction advisors who provide little service to their clients after the intial sell.
Most advisors who use advisory wrap-fee accounts and/or C shares provide onging full service to their clients. I know C shares have received some scrutiny recently, but they are the only way to provide smaller clients a way to invest with financial planning firms, because they would otherwise not be eligible for wrap fee programs that usually require a minimum of 50,000. These small investor are normally the clients that need the most help.
I understand that a part of 12b-1 fees include some soft money for mutual fund companies, but please take time to review the practical application of these service fees before throwing the baby out with the bath water.
Thank you for your consideration.