From: SZ [mailto:firstname.lastname@example.org]
As a licensed insurance professional, and a registered representative, I am pleased to see the action recently by the SEC to eliminate and prevent inappropriate practices in the mutual fund industry. I'm writing, however, to explain my reservations about going beyond the effort to correct inequities, to a degree that our customers may be harmed further because of our own self-regulatory steps.
I'm speaking specifically about proposals to eliminate 12b-1 fees, and their payment to broker dealers and registered representatives. I urge you to reject any such proposals.
On the surface, it might seem equitable to eliminate all 12b-1 fees, seeing them as some sort of "additional charge" that's unnecessary. However, when we think of the desire to have the investment rep always act in the best interest of the customer, we may be forcing the rep to think of other ways of generating an onging income from the investment account. Or worse, we may cause the client to be ignored by the investment rep, because there is no "service fee" to be earned for the care and advice.
My personal preference has always been a-shares, because of the lowest fees/charges to the accounts of my clients over the long term. There are other options available, always costing them more over the same period, that I resist, because my goal is parallel to theirs. The 12b-1 fees guarantee my clients that I am "in this with them", and thus directing their investment to the share class that best facilitates growth.
I fear that, in the absence of 12b-1 fees, the client will be ignored, as the representative focuses only on earning new business sales charges. The client deserves much more than that from his investment professional. But will he/she receive it? That same representative may be tempted to suggest share classes with higher ongoing expense charges, as a way to receive the fees lost to our new "idea" about outlawing 12b-1 fees. Outlawing 12b-1 fees might also increase the number of investment representatives who charge a "management fee", as an Investment Advisor. The client might be better served with more scrutiny of the "management fees" collected by Investment Advisors, than outlawing the one "fee" that guarantees "attention" from their representative, as well as making certain they both are "in it together".
Again, I urge you to reject any proposal to eliminate or restrict the ability of mutual funds to pay 12b-1 fees to registered representatives. I fear we will only create an arena of "strategies" among many representatives that will hurt our clients in a much larger way.
Thank you for considering my views on this subject. Please direct any further questions or requests to my email. Or feel free to call upon me directly by phone.
Scott H. Zoellner