March 1, 2004
As an individual advisor, I feel that it is important for me to take the time to comment on the proposed rule changes involved with SEC 15c2-2 and 15c2-3 and the Mutual Fund Reform Act of 2004.
The elimination of 12b-1 fees would be a severe blow to my ability to provide client services and maintain compliance related activities. This trail provides the only source of revenue to offset the cost of handling mail, maintaining client files for 7 years or more and providing required compliance information for clients who are no longer actively generating commissions or fee-based revenue, but whose records must be maintained. These fees are already listed in the prospectus and clearly available on most database research programs like Morningstar.
The proposed rules on mutual fund sales load costs would be exceptionally burdensome from a time and cost perpsective. The level of disclosures now on mutual funds is in stark contrast to the lack of disclosure on individual stocks, ETFs and bonds. There should continue to be easily readable and understandable language regarding front-end and back-end sales charges and the client should be made aware of them. The cost of additional paperwork, however, will outweigh the benefits to the client who wishes to mitigate some risks by investing in funds instead of individual stocks. Are clients better served by a compliance process that favors them buying Enron stock vs investing in a fund that has a 2 percent interest in Enron. I think not.