March 1, 2004
Please consider the impact on the industry and its investment delivery system before implementing changes to broker compensation. Mom and Pop America need investment professionals to teach them about investments before they invest and to remain available to them after the sale. The 12B-1 trailer fees that are paid to the broker is designed to keep this broker/investor relationship alive. Brokers must be paid for their time and effort. The 12B-1 offers an effective way to do this while internalizing the investment professional cost to the investor.
The alternative replacement fee will be an invoice for investment services that the broker will send to the investor for payment, and most probably will not be deductible to the investor. Such fees must exceed two percent of Adjusted Gross Income before they are deductible. Consequently these new regulations will create an after tax out-of-pocket non-deductible investment expense for Mom and Pop America.