Subject: File No. S7-09-04
From: Lawrence R. Sherman, CFP

March 24, 2004

The proposal to restrict the use of 12b-1 fees is misguided and counterproductive. The intended effect of serving investors interests is always worthwhile, but this proposal will have the opposite effect.
Those of us who have helped clients with financial matters probably know that there are some people who are capable, knowledgeable and interested enough to take care of their own financial needs, without the assistance of a financial advisor. Such people should have a variety of investment options available to them, including a variety of expense options so they can meet their own needs and control the expenses they pay and such options ARE currently available.
A larger portion of the population, however, benefits or could benefit by the help of a qualified, committed and experienced financial advisor. I would hope that the powers that be recognize that such advisors should be compensated in some way for providing the advice that clients need, and that the advice and service for clients does not end as soon as an investment is made. Without a reasonable compensation method, an entire industry would be destroyed, thousands of people could no longer make a living, advice could not be rendered, and there would clearly be a negative effect on the economy in which this operates.
To some extent, the need for financial advice, and the desire of financial advisors to support a way of life, provide for their families, employ a multitude of professional and support staff, and to play a major part in the American economy can be met by fee based arrangements between clients and Registered Investment Advisors. This is most applicable for investors of high net worth and substantial means to pay such fees.
However, this serves a relatively small portion of the investing public. Such fee arrangements are frequently not practical for investors of lesser means or with smaller accounts. That should not mean that these investors are not entitled to or not in need of qualified advice and ongoing service for their investment and other financial needs. The 12b-1 fee charged by mutual funds and used for ongoing compensation of Registered Representatives is very useful for this purpose and allows for these important services to be provided. The practices of professionals and broker-dealer firms provide for substantial disclosure of these expenses to investors.
The elimination of 12b-1 fees would have a devastating effect on an entire industry, resulting in substantial loss of productive jobs and a negative ripple effect on the economy. It would also mean that millions of investors would no longer be able to receive the ongoing assistance they need for their financial well being.
I urge the SEC and Congress to refrain from any regulations or legislation that would restrict the ability of the mutual fund industry to charge 12b-1 fees.