February 7, 2005
Jonathan G. Katz, Secretary
Securities and Exchange Commission
450 Fifth Street NW
Washington DC 20549-0609
RE: S7-25-99 Certain Brokers Deemed Not to be Investment Advisors
Dear Mr. Katz:
The Securities and Exchange Commission, a government commission which was created to protect the American consumer, should withdraw the proposed rule providing exemptions for certain brokers to not be covered by the 1940 Investment Advisor Act. You have an obligation to the consumers of this country to protect them from unscrupulous registered reps and broker dealers.
In the last decade, I have been a client of Merrill Lynch, a registered rep who was exempt from the 1940 Investment Advisors Act, and a fee only financial advisor who is covered by the 1940 Investment Advisors Act. My parents also were clients of Merrill Lynch. From that perspective, I have seen the implications of your proposed rule from all perspectives.
Merrill Lynch and most brokers offer financial advice under the guise of needs based selling. Those brokers show their reps how to define the needs for the client and then offer the products to fit that need. The compensation on products is designed to encourage the reps to offer the products which are most lucrative to the firm and the registered rep. The vast majority of registered reps do NOT offer unbiased financial advice. However, their clients ARE under the impression that they are being offered unbiased financial advice. If a registered rep offers advice in ANY form to a retail or institutional client, he/she should be covered under the 1940 Act.
If you are concerned about disruption in the market place, you can easily withdraw the rule and require all currently registered reps to submit an ADV in the same manner as those covered under the Act within 45-90 days of enactment of the rule. That is fair to the reps who need time to submit an ADV while protecting the public.
The National Association of Personal Financial Advisors NAPFA the CFP Board of Standards, The Consumer Federation of America, and the Financial Planning Association all have submitted comments urging you to withdraw the rule. Their arguments call for protection of the consumer and a level playing field for those who offer financial advice. I support their reasons for withdrawing the rule. Withdraw the rule and do NOT amend it. All financial advisors including all registered reps who offer financial advice should be covered under the 1940 Investment Advisors Act.
Help those seeking financial advice by giving consumers the full protection of the 1940 Investment Advisors Act. Withdraw the proposed so called Merrill Lynch rule.
Blaine P. Dunn, CFP
NAPFA Registered Financial Advisor