August 30, 2004
I continue to believe that the pending rule is so substantively flawed that it should simply be withdrawn.
If the SEC determines it should adopt a final Rule, I urge the Commission to make significant changes to correct the primary problem of misrepresentation -- intentional or otherwise -- by the broker sales agent acting as a trusted adviser. A final Rule should include the following elements:
1. Consistent with current SEC rule proposals for disclosure in connection with point-of-sales mutual fund transactions, the Rule should require disclosure
of all material facts and conflicts regarding any advice offered in the fee-based brokerage accounts.
2. The SEC should prohibit brokers who claim the solely incidental exemption from marketing their services as advisory services by prohibiting use of the terms financial, retirement, wealth, or similar terms in combination with advice, consult, counsel, plan, or any similar combination of words suggesting comprehensive financial planning services or permitting individuals from using a title similar to financial planner.
3. The Rule should treat all brokerage discretionary accounts as advisory accounts, regardless of the method of compensation.
4. Broker-dealers offering fee-based programs should be prohibited from using client testimonials in advertising materials consistent with the same prohibition on client testimonials by investment advisers.
5. The SEC also should offer guidance or examples in a final Rule of additional bright line factors that clarify what advice to customers is solely incidental to full brokerage services.
I believes that full disclosure of conflicts of interest in the fee-based programs is the key to an effective Rule. Regulatory reforms since the Rule was first proposed now routinely require disclosure of conflicts material to the point-of-sale transaction and customer relationship. It is time for the Commission to restore functional regulation of investment advice under federal securities laws. Investors will benefit through consistent and comprehensive disclosure of conflicts and the related fiduciary protections of the Advisers Act by withdrawing the Rule.
The investment industry has been damaged by flawed regulation and bad advice, most notably analysis from brokerages that prompted purchase of sponsored stocks. That these same houses should receive regulatory passes, but that independent advisors should be held to more stringent rules, makes no sense at all. The purpose of the SEC is not to promote brokerages they will do very well without having an undue advantage. Think about the investing publice, whose interest you are supposed to protect, and make the right decision.
That decision is clear. Kill this rule