From: Richard M. Arceci, JD, CPA
Sent: April 4, 2005
To: rule-comments@sec.gov
Subject: File No. S7-06-04


April 4, 2005

Jonathan G. Katz, Secretary
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549-0609

RE: S7-06-04/SEC Proposal on Point of Sale & Confirmation Disclosure-33-8358 and 33-8544

Dear Mr. Katz:

Unintended Results of Disclosure
Many non-investment people may believe that the process of advising and assisting a client investing in financial products is a short one. Yet, we in the industry know this is not true; nor should it be. For Example, below is an outline of a multi-step procedure that a typical representative in our broker dealer performs both prior to and during a mutual fund recommendation and purchase process.

Opening a Mutual Fund Account

  1. Financial Planning Conversations with the Client could be one or more visits to the client’s home or office, or the representative’s home or office to have a
    1. Discussion of financial goals, preferences, styles, etc.
    2. Discussion of current asset allocation
    3. Discussion of various investment products and intended purposes, etc.
    4. Discussion of mutual funds and finding suitability for client
    5. Discussion of charges of various mutual fund companies a for withdrawals, sales costs, commissions, i.e. dealer concessions, 12(b)(1) fees and management fees
  2. Introduction to Possible Choices of Mutual Fund Selections
    1. Discussion of Fund Families
    2. Discussion of Breakpoints
    3. Discussion of efficiencies and trade-offs of staying within Fund Families
    4. Discussion of how mutual funds are purchased
  3. ValMark Provides a Mutual Fund Brochure
  4. Explaining website availability and public performance reporting
  5. Delivering the prospectus for particular Funds and discussion how and where contents are explained
  6. Recommending selection of mutual funds for client(s)
    1. Discussion of applicability to goals
    2. Discussion of suitability for client(s)
    3. Discussion of long term impact to clients financial goals
  7. Processing New Account Form
  8. Processing Direct or Indirect Other Forms
    1. Direct
      1. Fund Company Application Form
      2. Mutual Fund Breakpoint Worksheet (for other mutual fund investments held)
      3. ValMark’s Disclosure for A, B, or C shares
    2. Brokerage Account
      1. Clearing Firm Agreement
      2. Mutual Find Breakpoint Worksheet Form
      3. ValMark’s Disclosure for A, B, or C shares
  9. Performing Future Services relating to investments.

The original investment process can take from three to four hours or from three to four weeks, depending on the client’s knowledge of investments, degree of sophistication of the investment plan and the follow-up and review process immediately after the original purchase. However, the Representative’s and his broker dealer’s job are not yet complete. Both the Rep and the broker dealer have an ongoing review and service responsibility. A representative has, as does his broker dealer, an office, support personnel, equipment, office supplies, phone, etc., so the client has somewhere to call and someone to see when the client has questions or problems.

In my view, the concentration of effort should be taken on the process of the investment purchase, not on the relative cost of purchasing one product versus another. While the client should be made aware of the costs and charges of investing, emphasis on the sales charge disclosure will, in my view, detour many investors from seeking advice before they invest. Investors will believe that any cost is WRONG! Emphasis on cost structure will have the unintended consequence of causing investors to equate suitability and appropriateness with the lowest cost product.

If the SEC believes that consulting fees rather than product commission is what the investor should be charged, I believe many investors will forgo obtaining a financial consultant’s or representative’s help before investing, because many consumers believe they cannot afford paying fees. The client would also be confused between the consultant’s fee and the management fees of the fund itself. The result is that those clients who need the help most of all would be investing in the dark.

Further, the job of providing asset allocation models for the client will become extremely complex, time consuming and costly; and therefore, it is likely that many broker dealers will curtail such activity.

Costs of Disclosure
We have determined that to implement the Point of Sale Disclosure and Confirmation Requirements will utilize a significant amount of representative and broker dealer resources. We have estimated that the cost to create the point of sale forms and to maintain them for the various products and mutual funds for which the forms are required is a significant part of our annual budget. As an independently owned broker dealer, the significance of the time, use of mechanical and technological equipment and additional personnel and added liability associated with the certainty of the disclosure is, in my view, resources spent in the wrong direction.

The SEC may be unconcerned with the costs of disclosure and confirmation. However, care should be taken to continue to provide the investment public with local, personal and professional representation. Independent broker dealers are critical to a significant portion of the investment public. Such disclosures would not enhance the service to or the knowledge of the investor. Resources, if any, should be applied to a better education piece more meaningful to the client.

Duplication of Information
Mutual Fund Companies are already providing information relating to costs of purchasing the various products through the Prospectus. Disclosure, to ensure it is proper and accurate, should be provided in the individual Prospectus of each and every Investment manufacturer. This would ensure accuracy and timeliness. Duplication is wasteful of resources and time; it is also confusing to the client. The client complains about receiving too much paper and that lessens the importance of each document that a representative provides during and after the investment product purchase.

Disclosure of special incentives and Conflicts of Interest
This may be the most relevant piece of information that the client could receive during the purchase/sale process. However, more clarification is required, and a literal, distinct disclosure must be made. Too much is read into or missing from the YES or NO answer.

Timing of Disclosure
I believe it will be inefficient and confusing to a client, when he receives a Point of Sale Disclosure Confirmation before the application is received by the Fund Company. The Confirmation information should be determined and transmitted by the Fund Company to the broker dealer; and the broker dealer can then communicate directly with the individual investor. At that time a specific disclosure can be made as to the actual charges and the distribution of those charges between the Fund Company, the broker dealer and the representative.

Variable Product Information
The disclosure form does not adequately disclose the very relevant information concerning a purchase of variable annuity information. The disclosure form, if any, should be more relevant to the product features and relevant costs. ValMark has developed its own variable annuity brochure, which has been reviewed by the NASD and is a much more relevant disclosure.

Sincerely yours,

Richard M. Arceci, JD CPA
Executive Vice President

RMA/rf