Subject: File No. S7-06-04
From: J. Derek Lewis, President
Affiliation: JDL Securities Corporation
April 1, 2005
As president of a small, independent broker/dealer, I am very concerned about the proposals for Point of Sale Disclosure. I think the entire approach is wrong and the answer is in improved prospectus design and readability for mutual funds and variable annuities. An acknowledgement of full disclosure of the fees could be part of the application package.
For any firm like ours where sales are by “check and application” method, the cost to develop systems that would create, print and mail customized transaction/fee/cost statements for every mutual fund and share class we deal with would be substantial. We have already restructured our personnel to handle all of the recent regulatory demands; many of our sales support staff are now working full-time in compliance administration. I can no longer continue to just absorb all of these extra costs. My fellow broker/dealers are adding new fee structures above and beyond the commission schedule to cover these costs, and we may be forced to do this as well.
As a producing manager, I have always accepted every account that has been referred to me, no matter what the size. These proposed changes and added burdens will mean that firms like mine can no longer afford to assist the small investor – it would not be cost effective. We would also have to significantly limit the amount of our offerings, or most of our time would be spent creating disclosure schedules on numerous offerings with multiple share classes.
These new costs are going to be passed on to the clients directly by added fees and substandard service, or passed on to the mutual fund companies who will then pass the added fees on to the customer indirectly. Either way, what was intended to help the customer is only going to increase his costs.
I strongly recommend that the SEC stop the current direction for Point of Sale Disclosure and consider that the mutual fund industry is in the best position to make the proper disclosures. Please take the time review and evaluate the current prospectus requirements, and create a new, simplified prospectus with clear disclosure to the customer.
J. Derek Lewis
JDL Securities Corporation
1001 Dove Street, Suite 160
Newport Beach, CA 92660