Via e-mail

March 24, 1997


Mr. Jonathan G. Katz
Secretary
United States Securities and Exchange Commission
450 Fifth Street, NW     Stop 6-9
Washington, DC 20549

Re:  File No. S7-27-96
Proposed amendments to Rules 17a-3 and 17a-4

Dear Mr. Katz:

The International Association for Financial Planning (IAFP) is pleased to
provide these comments on the proposed revisions to the books and records
requirements of Rules 17a-3 and 17a-4. IAFP is the largest and oldest
membership association representing the financial planning community. The
majority of our over 16,000 members are independent financial advisers of
broker dealers and thus will be significantly affected by the proposed
changes in the books and records requirements.  We have over 100
NASD-registered broker dealers that are members of our Broker-Dealer
Division.  Collectively, these firms have at least 100,000 representatives
affiliated with them.

IAFP and its members are supportive of attempts to increase investor
protection and confidence in the securities markets. We recognize the
examination process is an important element in protecting the public and the
regulatory agencies must have timely access to useful information to
determine if broker dealers follow applicable rules and regulations.

The books and records requirements of Rules 17a-3 and 17a-4 were initially
adopted more than 50 years ago, and have continued to be expanded and
refined to meet the challenges of an ever-changing securities industry. IAFP
believes that with few exceptions, the current rules have achieved a careful
balance between the needs of the regulatory authorities for access to
necessary information, and the economic and administrative burdens imposed
on the industry.

Our members were concerned when they learned the SEC was contemplating a
drastic (and we believe unwarranted) revision of these rules.  They follow
closely the SECÉs releases and enforcement actions, and have noted no
indication by the SEC that the current rules are inadequate. To the
contrary, it appears that the current rules have provided a high degree of
information needed by examining authorities and have enhanced investor
protection.

It is our understanding that the revisions to the rules were made in
response to requests by the North American Securities Administrators
Association (NASAA), partly in reaction to the limitations imposed upon the
states by the National Securities Markets Improvements Act of 1996 (NSMIA).
The state regulators are apparently dissatisfied with NSMIA Section 103 that
added Section 15(h) to the Securities Exchange Act of 1934 prohibiting the
states from imposing additional books and records requirements on
broker-dealers.

IAFP believes that in large measure the proposed rule revisions are
responsive to a desire by the states to simplify their examinations of
broker-dealers. Unfortunately, we find that the proposals do not adequately
consider the enormous economic and administrative impact on the securities
industry and fail to promote increased investor protection. We view these
changes as unwarranted and seriously detrimental to the securities industry,
benefiting only the state regulators, not the investing public.

IAFP strongly requests that the Commission withdraw these proposed
revisions. The negative impact on the industry (and ultimately, the
investing public) of these proposed revisions is simply too great when
compared to the modest benefits to be received by the regulatory
authorities. The current rules have been proven to be more than adequate to
protect the investing public and to provide state regulators with access to
the information they need to perform their examination responsibilities.
Broker-dealers who fail to cooperate with state regulatory authoritiesÉ
requests for information are already subject to loss of their state
registration. This is a powerful incentive for most broker-dealers to
respond promptly to requests for information or documents.

Following are IAFPÉs specific comments on the most damaging provisions of
the proposed revisions. We have concerns about additional provisions, but
believe that once the Commission appreciates the problems, costs and effects
that will result from the provisions discussed below, the Commission will
agree that the entire proposal should be withdrawn.

Local Office Records Requirements

Of all of the proposed revisions, we find the proposed requirements relating
to maintenance of records in Êlocal officesË to be among the most onerous,
without providing any increased protection for the public. Many of our
members do not utilize the structure found in many large traditional
broker-dealers where a local office might have numerous associated persons,
with a branch manager overseeing the operations of the office, and where
most client and associated person records are kept.

Instead, most of our Broker-Dealer Division members operate from a central
home office location at which virtually all books and records are
maintained. They may have associated persons who work from very small
offices (often, one person offices). These members have found that through
the use of centralized operations (in which the compliance and back office
personnel are situated in the same location with the firmÉs records),
periodic on-site inspections of their remote locations, and other compliance
procedures, they are able to provide a very effective and efficient means of
supervising the activities of their associated persons. The very substantial
cost savings resulting from centralized operations results in great
efficiency and encourages competition that directly benefits the investing
public.

Requiring voluminous duplicate records to be kept in each small office would
greatly increase the costs of operations (which would necessarily be passed
to the firmsÉ clients), but would not enhance the firmÉs supervisory systems
whatsoever. Moreover, we are concerned that many firms, especially those
located in smaller communities, would not be able to afford the costs of
implementing these procedures or would not be able to recover enough of
these costs to remain in business. The loss of these firms would seriously
diminish the ability of investors in these smaller communities to have
access to quality financial planning advice and the capital markets, and
would greatly lessen competition.

IAFP understands state regulatorsÉ desire to make the state examinations
easier and quicker by requiring each local office to have virtually all of
the records needed to complete an examination. We acknowledge that in
isolated cases broker-dealers may not have promptly provided information
requested by the state regulators, particularly when such information had to
be provided from a remote location.

However, we cannot agree that the solution to this relatively infrequent
problem is for every broker-dealer in the country to be forced to keep
voluminous and confidential records at thousands of remote locations. We
believe the SEC should consider other, more measured solutions that do not
impose tremendous costs and inefficiencies on the industry.

For example, we would suggest the Commission address the problem of timely
access to necessary documents by eliminating from the rules ambiguous terms
such as Êeasily accessible," Êreadily available," ÊpromptlyË and Êwithout
delay." These terms should be replaced with a single term such as
Êpromptly."  Any information or documents specified in the rules regarding a
firmÉs business, whether at the home office, an office of supervisory
jurisdiction (an OSJ Office) or a remote location, would be required to be
produced to the SEC, SRO, or state regulators ÊpromptlyË upon request. The
term ÊpromptlyË would be defined as requiring the requested information or
document to be produced within 24 hours for information or documents that
happen to be located at the site where the examiner is located, or within 10
business days for all other information or documents.

IAFP believes that there should be no requirement for any account or other
information or documents to be located at any site other than the
broker-dealerÉs home office (or other office designated as its document
depository) or an OSJ Office. Regulatory authorities who wish to examine
locations other than the home office or an OSJ Office may request in advance
information or documents they wish to examine at the remote location. IAFP
suggests state securities administrators coordinate examinations so that
each firmÉs examination would be conducted by the state in which the home
office (or other document depository) or OSJ Office is located.

Should IAFPÉs recommendations not be accepted, and records be required to be
maintained at local offices, we strongly urge the Commission to require only
the most basic account documents to be kept at any site other than the home
office (or other office designated by the broker-dealer as its document
depository office) or OSJ Office. Remote site documents should include no
more than local office advertising files, summaries of that officeÉs
customer complaints, correspondence files for that office, records of daily
trades, and customersÉ new account forms for that office. All other
documents would be maintained at the home office or OSJ Office, to be
produced ÊpromptlyË (as defined above) upon the examinerÉs request.

We anticipate NASAA will find these time periods for providing information
or documents to be unacceptable, and will want more comprehensive
information and documents to be maintained in each local office. However,
NASAA fails to consider that even in the case of a home office inspection it
often requires substantial time to produce and organize requested documents
or information, particularly in the case of small broker-dealers where only
one person may be able to access information quickly. If that person happens
to be unavailable, it may take until the next day for other personnel to
locate even on-site information or documents.

Documents located off-site require even more time to produce. The location
of the documents must be determined (since firms may have several off-site
records storage facilities), the appropriate storage site must be contacted,
the documents must be retrieved from the storage facility and prepared for
shipping (which often takes a full day or more), the documents must be
shipped to the examination site, and the documents must be organized for
presentation to the examiner. In many situations, this process will take
many days; therefore, we do not believe 10 business days is an unreasonable
amount of time to accomplish all of these steps.

IAFPÉs proposal would not prevent any state regulatory authorities from
examining any broker-dealer location in their state. The states would be
free to conduct surprise or other examinations of each office in their
state. The only limitation will be, where advance notice is not provided, it
will take some time to provide the examiner with the appropriate documents
if the regulator is examining any office other than a home office or an OSJ.

We believe this burden on the regulators is minimal, and will not negatively
affect investor protection. Certainly, this small burden on the regulators
is far more reasonable than requiring an entire industry to have tens of
thousands of offices standing always to have all business documents
available locally for the possibility of an examination. This is especially
so given the fact that the vast majority of broker-dealers cooperate fully
with the regulators and provide information and documents in a timely
fashion.

New Account Form Requirements

The second subject about which our members have voiced considerable
objection involves the proposed requirements regarding new account forms.
Under rules of the NASD and other SROÉs, broker-dealers are required to
maintain specified information regarding their customers. See e.g., NASD
Rule 3110 and IM-3110. Broker-dealers and associated persons must also have
reasonable grounds for believing that each transaction is suitable for their
customers. This suitability obligation often requires the broker-dealer to
obtain information in addition to that currently required to be included on
the new account form.

However, there is no present requirement that all of this basic account
information must be contained in any one document. Quite often, this
information is collected at different times, based on the nature of the
transactions in which the customer is engaging. For example, an associated
person might fill out a basic account form for a client who is performing a
small transaction, and then later obtain much more extensive information
about the customer during the financial planning process. Requiring the
associated person to obtain all of this information at the outset may be
completely unnecessary if the client does not transact further business.
 Moreover, requiring all of this information to be included on a single form
will impose a very substantial administrative burden on broker-dealers,
without increasing customer protection. We do not see any benefit, other
than to the regulatory authorities, of requiring customer information to be
included on a single form.

IAFPÉs members are particularly dissatisfied with the proposal that the new
account form must be mailed to clients. Many broker-dealers require their
clients to sign their new account forms. We do not see the benefit of having
to mail a copy of the new account form to customers who have just signed the
same form. Even for those clients who do not sign the new account form, our
members do not believe that mailing the form to them is necessary.
Prevention of the very isolated situation in which a new account may contain
incorrect information does not justify an extremely onerous and costly
burden on the entire industry.

However, if the Commission determines that a revised new account form must
be obtained from, and mailed to, clients, then these requirements should
apply only to clients who have not signed their new account forms and who
are Êactive clients." Active clients should be defined as those clients who
enter into a transaction through the broker-dealer after adoption of the
mailing requirement. Our members have literally tens of thousands of clients
on their books who will never transact any further business with them. There
should not be any requirement to complete and mail a revised new account
form to clients who do not do business with the broker-dealer after adoption
of these requirements.

Similarly, if the Commission adopts a specific deadline for periodic
updating of new account forms (such as the proposed requirement that the
investment objectives be updated annually), there should not be any
requirement to update forms until the client enters into additional
transactions, and only if the prior new account form is more than three
years old. Thus, if an existing client never enters into another transaction
with the broker-dealer, no updating of the new account form will be
required. If the existing client wishes to engage in a new transaction, an
updated new account form would be required if his prior one is more than
three years old at that time.

IAFP members conducts the majority of their business in professionally
managed packaged products such as mutual funds and variable annuities which
by their very nature are long term investments.  As a result, most of their
investorsÉ investment objectives do not change frequently. Of course, under
the general suitability requirements, an associated person is still
obligated to confirm a particular investment meets an investorÉs objectives
at the time of each transaction, and if the associated person learns  the
customerÉs objectives have changed, they will be required to update the
account form. We object however, to a mandatory requirement to update all
account forms at a fixed time.

Our members have voiced considerable disagreement with the proposed
requirement of allocating percentages to the amount of their portfolio that
might be invested in ÊspeculativeË investments. We believe that this
requirement would be interpreted by the courts or arbitrators to impose a
ÊmonitoringË obligation on the broker-dealers. Additionally, this provision
poses an unacceptable risk that plaintiffs lawyers would somehow use the
account form against the broker-dealers to prove that an investment was per
se unsuitable if it exceeded the percentages shown on the new account form,
even if subsequent oral discussions with the client indicated that they were
willing to accept the risks of a particular investment.

Furthermore, our members do not agree that ÊspeculationË is an investment
objective. Our view is that speculation is reflective of a level of risk or
volatility that an investor is willing to take in a particular investment.
Thus, if a clientÉs objective were Êincome," the level of risk he might
accept in income-oriented investments might range from low risk (Treasuries)
to speculative (junk bonds). We believe that any reference to ÊspeculativeË
or ÊspeculationË belongs more properly in a discussion of risk tolerance,
not investment objectives.

There is considerable disagreement over the definition of the word
Êspeculative.Ë Certainly, the definition proposed in revised section
17a-3(a)(16)(C) is not acceptable. The SECÉs proposed definition, which
refers to speculative investments as those which may have a risk of loss
greater than general market averages, could for example classify all
investments with a beta greater than 1.00 as speculative. Although we have
not achieved a consensus on the definition of Êspeculative,Ë any definition
should refer to a substantial risk of losing most or all of a particular
investment.

Customer Complaint Requirements

The proposed revisions to Rule 17a-3(a)(17) require broker-dealers to keep
portions of customer complaint files in local offices, specify what the
complaint files must contain, and require documentation of oral complaints.
Our members believe these requirements impose an unreasonable economic and
administrative burden on broker-dealers and fail to increase investor
protection.

The issues regarding local office records requirements have been discussed
above. Many of our members maintain their complaint files in their home
offices or at most in their OSJ Offices. The only information that is kept
in the associated personÉs office is a copy of the complaint itself. All
other documents are kept at the home office or OSJ Office. The associated
person does not routinely receive, nor does he often need, a copy of the
response or resolution, as required by the proposed rules.

The proposed rules require certain information to be maintained in the
complaint files. However, many of our members keep information regarding a
customer complaint (other than a copy of the written complaint itself) in
the clientÉs file or a litigation file.  The NASD does not require
maintenance of one consolidated file that contains every document regarding
a complaint. See, NASD IM-3110(d). Rather, the NASD recognizes documents
regarding a complaint may be contained in separate files, whether for
administrative or confidentiality purposes, and requires the complaint file
contain a reference to the location of the related files. Our members are
satisfied with the requirements imposed by the NASD, and believe the
additional requirements contained in the proposed revised rule would not
produce any benefit for the public or the industry.

The proposal regarding oral complaints is clearly unworkable, and imposes
yet another unwarranted administrative burden on the industry, without any
offsetting benefit to the investing public. Broker-dealers receive many
complaints by telephone that are disposed of quickly and to the satisfaction
of the customer.  No written record is made of this complaint, nor should
there be one. These are usually minor matters that can be resolved
informally.

There is also a great deal of ambiguity in the terms used in the proposed
rule regarding which complaints would need to be summarized in a memorandum.
Given the fact that the personnel who may receive customer complaints will
generally not be attorneys, there is a risk they will not recognize when a
complaint should be noted in a memorandum.

Our members also do not believe that clients should be encouraged to put all
complaints in writing. We find that customers are already generally aware
that unresolved complaints should be in writing. The increasing number of
complaints filed with the SROÉs, as well as the tremendous increase in
securities arbitrations and litigations, is ample evidence that investors
are aware of their remedies if they have a complaint. We do not believe they
need further encouragement by means of some type of periodic notice,
especially regarding simple mistakes or misunderstandings that can be easily
and efficiently handled by telephone.

Moreover, many of our members are fully disclosed broker-dealers who do not
routinely send any client statements or written communications to their
clients. If this proposal were adopted, they would be forced to make
special, expensive mailings to their customers, simply to inform them of
something most of them already know, i.e., unresolved complaints should be
made in writing.

Other Areas of Concern

Our members have significant concerns regarding many other provisions of the
proposed rules, summarized below:

Designation of a Compliance Principal.  Proposed Rule 17a-4(k) requires the
designation of a principal to ensure compliance with the books and records
requirements of Rules 17a-3 and 17a-4. This rule is ambiguous and on its
face would seem to preclude the designation of more than one principal to
approve various documents requiring approval. Our members routinely
authorize their various branch managers and compliance department personnel
to approve such documents for the firm. This rule should be revised to
contemplate the delegation of approval authority to more than one principal.

Attorney-client privilege and work product.  Our members are concerned that
the rules could be interpreted as permitting regulators access to
confidential attorney-client communications or work product, particularly
when prepared by in-house attorneys. For example, proposed Rules
17a-3(a)(17)(iv) and 17a-3(a)(20)(v) refer to Êlitigation and arbitration
documentsË that must be made available to regulators. This could arguably be
interpreted to include confidential communications or work product.
Similarly, proposed Rule 17a-4(b)(4) refers to Êall communications sent by
such member... relating to its business." Again, this could arguably include
attorney-client communications or work product. Our members request that the
rules be made clear that regulators do not have access to these types of
documents.

Client Communications Requirements.     The requirements of maintaining
Êclient communicationsË are much broader than the NASDÉs current
requirements regarding retention of advertising, sales literature, and
correspondence pertaining to the solicitation or execution of a securities
transaction. See, NASD Rules 2210(b) and 3010(d). The administrative and
economic burden of retaining and organizing every communication to a client,
as well as all inter-office memoranda, is simply unwarranted.

Exception Reports Requirements.    We do not believe that the SEC should
mandate firms to prepare and retain exception reports. Many of our members
are small broker-dealers who are able to supervise properly the activities
of their associated persons without the use of any exception reports. Many
do not have the technological capabilities to produce exception reports.
Although exception reports may be very useful tools, we do not believe that
all firms should be required to maintain them. Systems for adequate
supervision of associated persons should be left up to each firm, depending
on its size, the nature of its business and clients, and its financial
ability.

Records Retention Requirements and Periods.  Our members are opposed to any
increase in the types of documents that must be retained, and any increase
in the periods of time during which the records must be retained. We have
addressed above our opposition to many new types of documents that the
Commission has proposed that broker-dealers maintain. Even for currently
required documents, their retention period should not be increased, nor
should the categories of documents that must be Êeasily accessibleË be
increased. It is not economic for long lists of documents to be required to
be kept in very expensive office space so that they can be produced in a
very short period of time. The current rules should be retained as the
proposed does little to improve investor protection but will dramatically
increase industry cost. As stated above, we believe 24 hours is the shortest
period of time documents should be required to be produced, even if they are
on-site. The current rules should be retained.

Inaccurate Estimation of Costs

The SECÉs Release contains a discussion of the estimated costs attributable
to the proposed revisions to these rules. Our members believe these costs
are grossly understated. Major revisions would be required to be made in
firmsÉ account information, computer records systems, compliance systems,
records storage systems, and account review systems. Many of these costs
will be on-going, particularly costs relating to updating client account
information, expanding local offices to provide adequate space for required
records, and additional periodic updating of client computer information.
These costs were not considered in the estimate, or were inaccurately
estimated. For a number of broker-dealers, the costs will be prohibitive.

Conclusion

As stated above, our members believe that the current rules, though not
perfect, have achieved a reasonable balance between protection of investors
and the economic and administrative burdens on the industry. The proposed
revisions of the rules would greatly disrupt this balance, placing a far
greater burden on the industry without any corresponding increase in
protection for the investing public. We respectfully request that the
Commission withdraw these proposed amendments to Rule 17a-3 and Rule 17a-4.

IAFP wishes to thank the Commission for its consideration of these comments.
If the Commission has questions regarding these comments, or would like
further information, please contact me at the address shown above or at
(404) 845-0011, extension 7764.


Sincerely,


Dale E. Brown, CAE
Associate Executive Director