April 12, 2004
I have a few comments from the practical perspective of this proposed regulation. Over the years of regulation, I believe many rules and statues have been implemented which protect clients and the general public in a multitude of ways, but there are several problems with this new rule which inherently the process of actually doing business and assisting people with their planning.
Too Complex - The required disclosures in the Proposed Rules are extremely complex and equally difficult for the average retail investor to comprehend. Forecasts of future hypothetical expenses may be confusing and could be potentially misleading. The quantity of information to be disclosed rises to the level of analyst information, rather than investor information. When given a one- or two-page disclosure document two times for every transaction, one wonders whether a retail customer would quickly become numb from the volume of data.
The Disclosure is unnecessarily detailed for the majority of customers - Disclosure of conflicts of interest are important to an investors decision-making, but identifying conflict does not require the degree of detail prescribed by the Proposed Rules. The mandated level of detail is disproportionately expensive to obtain for firms, especially those with a parent controlling funds or variable products and multiple broker-dealers and investment advisers when judged by how the average retail investor could or would use the information. Specific dollar amounts over a short time frame have no context to reasonably enable the clients decision process relative to the potential for conflict. Also, it would be virtually impossible for firms to comply with the section of Proposed Rule 15c2-2 that requires disclosure of certain anticipated compensation. The disclosure requirements for conflicts of interest also cover sales contests, which may be short-lived and require nearly real-time updating in the disclosures.
Disclosure requirements are repetitive and overlapping. - They create many new disclosure requirements for broker-dealers to make not once but twice and sometimes even three separate times in the case of certain oral point of sale disclosures. One-time disclosure should be sufficient if the disclosure is made in writing. Furthermore, disclosure must be made on a transaction-by-transaction basis, regardless of whether it is appropriate. Given the cost associated with implementing the Proposed Rules, there is little benefit in requiring disclosure of the same information three separate times, i.e., in the face-to-face meeting, in the prospectus, and on the confirmation. Moreover, customers cannot avoid the deluge of paper and information even if they would choose to do so.