September 19, 2004
Members of the committee,
First of all, thank you for reopening the comment period.
After reviewing your Executive Summary for Release Nos. 34-42099, Certain Broker-Dealers Deemed Not To Be Investment Advisers, I urge you to withdraw or substantively amend the proposed rule. After reviewing most of the responses urging you to withdraw the proposed rule, I believe most, if not all, of the sound reasons for the requests for withdrawal have been cited.
One response in particular, offered by Bob Veres, is particularly well-developed and largely represents my sentiments, especially with regard to his commentary about the relabeling of brokers as advisors or consultants, but nevertheless still engaged in and managed as a sales effort.
Quoting from his response, Over the years, the people once called brokers have been renamed advisors and counselors, words chosen with care, words that do not suggest that there is a sales role or conflicts behind the advice offered to the public. I doubt very much that anybody reading this is unclear why these firms chose to rename their representatives. History has shown--and a careful reading of the 1940 Act confirms--that consumers prefer conflict-free advice to advice from people who have multiple agendas. Consumers put more trust in a fiduciary than in a salesperson. If the salesperson can somehow masquerade as a fiduciary, as an investment adviser, then the doors of trust are opened to people who are then able to act on their conflicts of interest and make recommendations and execute transactions that benefit everybody but the customer. It is, in short, very good business to have salespeople rather than fiduciaries, but have the salespeople seem like fiduciaries to the general public.
I add the following excerpts from the 2003 Annual Reports for Merrill Lynch, Morgan Stanley, Citigroup Smith Barney, UBS formerly Paine Webber and Wachovia Securities to illustrate support for his comments. I ask you to compare the representations of these companies with regard to their marketplace positioning, as communicated to their shareholders, with the comments submitted urging withdrawal of the proposed exemption and any representations that these companies or other broker/dealers may have made to you in these proceedings.
Completing a word-count of the words financial advisors and financial consultants and derivatives thereof, versus the words broker and brokerage in these descriptions that they have proffered as explanations of what they do is instructive, if not possibly conclusive.
Tallying the number of Financial Advisors and Financial Consultants employed at Merrill Lynch, Morgan Stanley, Smith Barney, UBS and Wachovia approximates 50,000 individuals according to their annual reports, illustrating the scope and significant impact of an unwise choice with regard to this rule.
From the Merrill Lynch 2003 Annual Report
Global Private Client Business Segment
GPC provides a full range of advice-based wealth management products and services to assist clients in managing all aspects of their financial profile through the Total Merrill SM platform. GPCs offerings include commission and fee-based investment accounts, credit products, banking services, cash management and credit cards, trust and generational planning, consumer and small business lending, retirement services and insurance products. GPC serves individual investors, and small and middle market corporations and institutions through approximately 13,500 Financial Advisors FAs in approximately 640 offices around the world as of year-end 2003.
To align asset account structure with each clients specific investment requirements and goals, GPC offers a choice of traditional commission-based investment accounts, a variety of asset-priced investment services, and self-directed online accounts...
The Wealth Management Technology Platform, which will be deployed in 2004, will provide a new standard of desktop technology to more than 23,000 users, including Financial Advisors, Client Associates, the Financial Advisory Center and call centers by providing a fully integrated desktop that incorporates market data and financial planning tools.
Pictured: William J. Moran Jr., Vice President, Senior Financial Advisor, Global Private Client, Ritch M. Tindall, client, Elizabeth M. Shepard, Vice President, Senior Financial Advisor, Global Private Client.
The Stars Are Aligned. Merrill Lynch looked to the stars to help Ritch Tindall, a pharmaceutical executive, plan for the future. Our financial advisors diversified his portfolio, and helped with his retirement, estate planning and wealth protection. For investments, we recommended strategies from the Consults multi-manager separate account platform. Our asset management division, Merrill Lynch Investment Managers, delivers strong investment results across a range of products. As of December 31, 2003, Morningstar Inc., a respected research firm, awarded 22 MLIM funds four- or five-star ratings for risk-adjusted total return. More than 70 percent of our assets under management exceeded appropriate investment category benchmarks for the year. So while MLIMs sparkling performance catches the eyes of our financial advisors, our clients are the real stars, with portfolios built to shine.
From the Morgan Stanley 2003 Annual Report
Individual Investor Group
The Individual Investor Group provides comprehensive financial services to individual investors globally. Morgan Stanley has one of the largest financial advisor networks in the U.S. with approximately 11,000 advisors in nearly 450 branches. Through its financial advisors, Morgan Stanley is committed to delivering advice to its clients with a focus on affluent and high net worth investors.
In the U.S., Morgan Stanley provides services to multiple client segments spanning the wealth spectrum through a single sales organization. Morgan Stanleys network of financial advisors and investment representatives provides clients with financial planning and investment advisory services through a flexible platform designed to accommodate individual investment goals and risk profiles.
Morgan Stanley also offers financial advisory services outside the U.S. to serve the needs of high net worth clients in Europe, Asia and Latin America.
Morgan Stanley provides various products and services to execute financial plans and position clients to attain their financial goals, including mutual funds, stocks, bonds, professional money management, banking, mortgage, insurance and trust.
From the Citigroup 2003 Annual Report
Private Client Group
The Private Client Group--Smith Barneys wealth management and financial planning business--continued its strong performance in 2003 by placing more emphasis on client service in wealth management and on a team-based approach. Clients have reacted positively to the increased depth and breadth of service that a team of financial consultants can offer, and this will continue to be a key area of focus.
Who We Are
In 2003, Smith Barney launched a U.S. advertising campaign focused on one of our key competitive advantages--the talent and experience of our Financial Consultants. Hence the campaigns tagline: This is who we are. This is how we earn it.
From the UBS 2003 Annual Reviewformerly Paine Webber
Wealth Management USA
Facts figures on Wealth Management USA
--Providing a complete set of sophisticated wealth management services to affluent and high net worth clients, Wealth Management USA is the fifth largest wealth manager in the US.
--We have CHF 634 billion in invested assets and neraly 2 million private client relationships, supported by a network of 7,766 financial advisors in 366 branch office locations.
--Our strength lies in the emphasis we put on building and maintaining consultative relationships between high net worth clients and their financial advisors, who offer a wide array of investment products and services.
--We commit considerable resources to develop and expand the capabilities of our financial advisors. With a dedication to and emphasis on training, they are a key factor in developing long-term, mutually beneficial client relationships.
From the Wachovia 2003 Annual Report
Capital Management is focused on helping clients achieve a lifetime of financial goals with many choices and resources structured around the clients needs. Retail brokerage services are offered through the 3,300 offices of Wachovia Securities in 49 of the 50 sates and in South America.
Our 11,500 registered representatives focus on helping clients make educated decisions regarding their financial portfolios and financial future, with an emphasis on disciplined investing and unbiased advice.
In conclusion, others have shared in their comments with you that if it walks like a duck, swims like a duck and quacks like a duck, then its a duck. I arrive at the same conclusion and respectfully request that you withdraw or substantively amend this proposed rule.