From: Thomas C. Paron [firstname.lastname@example.org]
After reviewing S.2059 Mutual Fund Reform Act of 2004, I would like to make the following comments.
I agree with the elimination of directed brokerage, soft dollar arrangements and revenue sharing. However, the elimination of rule 12b-1 would have adverse affects on how small accounts receive client service and advice. Once you eliminate the ability of the advisor to receive on-going compensation for servicing the account, the economics force you to work with higher net worth clients only. The ones who can afford a wrap type of account and the ones who will be manageable from a relationship point of view.
John Bogles comment about putting the mutual fund investor in the driver seat is a little self serving. All the small accounts who brokers and planner can not longer afford to service can work with Vanguard.
In addition, 12b-1 fees help eliminates the need to move funds for compensation. I would think the industry would experience a much higher movement of funds from one fund to another mainly to generate commissions to replace the lost income from 12b-1. How is this possible good for the industry????
The financial planner is painted as this money hungry fat cat who provides little or no service and received this 12b-1 fee to provide nothing in return.
I manage over 350,000,000 for over 4000 clients, mainly educators in CT/NY. If the 12b-1 is eliminated I would have to fire about 3000 clients, and reduce my full time staff by 50.. I would only concentrate on clients who have a minimum of 100K with our firm and I would begin to charge hourly fees and asset based compensation.
The net result would be a more expensive structure for the client.....More importantly 3,000 clients would go without representation...Is this what John Bogle visualizes????? This must be his Gold Standard of client service....
The media has begun to describe the 12b-1 fee s this large expense which is raping the public of hard earned funds. Today on NPR the announcer indicated if you pay 12b-1 fees the cost will translate into the difference between bagging groceries during retirement and having a comfortable retirement.
Is this responsible journalism????
My professional vote is to increase the level of disclosure and increase the transparency of fees.. If you eliminate these fees it will have a server negative effect on how must of the public received advice..
Please take the above into consideration.
Thomas C. Paron, RFC, CFC