From: Dave Warner []
Sent: Wednesday, March 03, 2004 2:01 PM
Subject: Comments on File No. S7-09-04, (proposed SEC Rules 15c2-2 and 15c2-3)

Regarding the possibility of 12b-1 elimination:

One concern I have about the elimination of 12b-1 fees relates to those advisors who have sold (or are about to sell) their business, assuming the 12b-1's are part of the assets being sold. In the case of recently sold practices, the sale price includes the value of future 12b-1 fees. If these fees were suddenly eliminated, the new buyer of the practice would be overpaying for this practice, possibly forcing him into an impossible situation where he is unable to make payments for this purchase (payments are often made over time).

Another concern regarding the possible elimination of 12b-1s concerns the effect it will have on the ongoing viability of financial planners and other professionals who have depended on 12b-1’s as a major source of income, esp. since this income helps pay for ongoing services. For example, if a car salesman sells a car, he receives his commissions and the customer’s contact with him is over. When a customer purchases a mutual fund from most financial professionals, the relationship does not end there. Rather, the financial professional is typically the first one called when a client has a question about the fund, dividends, distributions, change of beneficiary information and so on. If the 12b-1’s were to disappear, I would guess that quite a few professionals would either go out of business or be forced to change the way they do business. This would be bad for the client, bad for the mutual fund companies who would then have to hire more people to answer questions from clients they know nothing about, and bad for those advisors who are hurt financially by these changes.

Finally, and more cynically perhaps, I would worry about those clients whose best interests are not foremost in a small number of financial advisors minds (yes, there are bad ones in every group). What is to discourage these “advisors” from switching into new funds periodically to generate new commissions to make up for money lost from discontinued 12b-1 revenues? Yes, this can happen now and is illegal and unethical, but the suddenly lost 12b-1 revenue when mortgages and college bills are due, coupled with the resentment of the change, may push more “advisors” over the line.

Thank You,
David Warner, CFA
Silver Spring, MD 20910