August 25, 2004
I understand that the proposed rule attempts to exempt broker-dealers from the Investment Advisors Act of 1940 when they offer fee-based brokerage programs. This is a big mistake and the rule should be withdrawn. I have heard numerous consumer claims against brokers and their sales representatives alleging improper conduct. Most of the claims involve alleged unsuitable investments. The investment public is being misled by the large brokerage firms when they seek investment advice for the purchase and sales of securities. They are regularly told that their representative is an investment advisor or counselor and they believe that the person is experienced in providing suitable investment advice relative to their entire investment portfolio and other investments relative to their net worth and assets. They are told this at the beginning, then when the purchases of securities go sour because they are in unsuitable investments, the brokers defend against the claims at arbitration stating they are only order takers and not investment advisors. The names of their representatives, however, reveal otherwise names like Investment Advisor or Counselor. These persons and companies should be under the same standards as all other investment advisors and they should be made to prove that they did not take on this role when they solicited the business, and that the customers were fully made aware that they are merely order takers and recommend the purchase or sale of particular securites and they are not offering investment advice relative to the suitability for an entire portfolio. Also, they should not be exempted from conflict of interest disclosure when providing investment advice. I have witnessed too much misconduct among representatives of the large brokerage firms, a lack of training and supervision, and a complete unwillingness to accept responsibility for improper and unsuitable investment advice. This industry needs much more regulation and inforcement of existing laws, and not less in the form of exemptions.