March 30, 2005
March 30, 2005
Jonathan G. Katz, Secretary
U.S. Securities & Exchange Commission
450 Fifth Street, NW
Washington, DC 20549-0609
Re: File Number S7-06-04
Dear Mr. Katz,
I, David Warren, a registered representative with Great American Advisors, Inc. respectfully submit the following comments for your consideration regarding the two new rules proposed, 15c2-2 and 15c2-3.
The vast majority of my clients and prospective clients are in the 403b, k-12 marketplace, where they voluntarily contribute to their own retirement plan through the purchase of mutual funds and variable annuities, very often in amounts as low as 50 dollars per month over many years.
My interpretation of the Proposed Rules is that:
1. Prior to a sale, I, as a registered representative will be required to present lengthy forms, disclosing distribution costs, to include compensation to the broker/dealer and representative - in my case, the princely sum of 48 dollars approximately per year for all of the services I provide to a client - for each and every product offered, including a separate form for each share class available;
2. My broker/dealer, Great American Advisors, Inc. will be required to prepare, supply and continuously update such disclosure forms;
3. After a sale, my broker dealer wil be required, in a written confirmation sent to the client, to provide the same information provided in 1. and 2. after each transaction - in my case, that could be hundreds or even thousands for each of my 1,000+ clients.
Nobody wants to provide clear and concise disclosure to investors more than me. However, in order for my broker/dealer to stay in business, the humungous implementation costs for all of this would be passed onto me and to my clients. How does this reduce the cost of investing for the small investor, trying to save for retirement, college costs for children, etc.?
I envisage most small and medium-size broker/dealers at least having to significantly reduce the number of fund and insurance companies on their approved product list: the complexity of the rules and disclosure requirements would prompt them to reduce the number of mutual funds and variable contracts offered for sale in order to minimize the amount of data needing to be maintained.
If these proposed rules go into effect, many might even go out of business - along with all of their independent-contractor representatives, like me. Would this reduction in choice of broker/dealers, representatives, funds and insurance companies be a good thing for the small investor? Is there not a possibility that less choice might lead to higher fees, etc. for the average investor?
Do we really need to disclose the same information three times - at point of sale, in a prospectus, and in transaction confirmations? Would it not be sufficient to do it one time, in writing in a prospectus?
What qualitative and quantatative information would be presented to the average investor in the proposed one or two page disclosure document? Most retail investors do not understand the complexities of the securities industry. How would they react to pages of numerical and statistical data?
Would the disclosure of far more detailed information than such a customer could reasonably comprehend really help him/her in his/her investment decision-making?
Moreover, would the mountain of paperwork received by my clients who in many cases are having 50 dollars per month payroll-deducted really benefit them, especially if the quantity and type of information to be disclosed rises to analyst, rather than investor levels?
Why should the burden of disclosure be shifted from product manufacturers to member firms? It is much more appropriate to place most of the required information in a product prospectus, since mutual fund and insurance companies are in the best position to accurately describe the costs which they directly or indirectly control. Why not make changes in a product prospectus to accurately identify distribution costs and their impact on the performance of an investment?
Anyway, such are the thoughts and concerns of a well-qualified, ethical and customer-oriented planner, who by no means wishes to hide anything from a customer or potential customer.
David Warren, M.A., CFP, ChFC