Subject: File No. SR-NASD-2004-183
From: Jed E Bandes
Affiliation: CFP, ChFC, CLU

July 10, 2006

Mutual Trust Company Of America Securities welcomes the opportunity to provide its opinion regarding the NASDs new proposed rule # 2821, even though we feel that the SEC usually rubber stamps these proposals no matter how unnecessary they may be.

Our firm strongly opposes this punishing, anti-competitive new rule for a variety reasons:

Mistaken Assumptions - The new requirements and standards interfere with the firms ability to make investment recommendations based upon the clients investment objectives. For example NASD bureaucrats are proposing in 2821(a)(b)(B) under "Investment Requirements" that the investment objectives of a client must be "long-term" before a firm may recommend an annuity to a client. Our firm has had numerous clients that wished to defer taxes on their investments for as little as six months to three years. These clients were not bureaucrats they were very sophisticated clients and they wished to use an annuity to accomplish this short-term deferral. Under the proposed rule our firm would be fined by the NASD if we recommended an annuity for clients seeking short-term deferral. Additionally, the NASD does not specify what long-term or short-term means. Many variable annuities have very short surrender charges and some do not have any surrender charge at all. Some clients investment objectives are fluid and this rule does not address those clients. For instance, if their annuity value was down they will spend other monies until their annuity is at a profit, making their time horizon long. Conversely, should the annuity show a profit they would spend the money in their annuity making their time horizon short. NASD bureaucrats are mistaken to believe that all investors that buy annuities have a long-time horizon.

Lack Of Clarity And Transparency- The new rule states "prior to recommending a variable annuity a member or a person associated with a member shall make reasonable efforts to obtain, at a minimum, information concerning the customers age, annual income, financial situation and needs, investment experience, investment objectives, etc., etc." Having gathered all of this information the NASD fails to tell us what it is to be used for. For instance the rule requires that we obtain the clients age (which is an unnecessary redundancy because the insurance company underwriting the annuity requires this information as it is an insurance product). After obtaining the clients age the rule fails to inform firms as to what age the NASD feels an annuity is appropriate. Is 13 years of age to young to begin deferring taxes or 83 to old to start deferring taxes? Our firm would have a hard time developing criteria as the rule requires because we feel that the guarantees that annuities offer are desirable no matter what the clients age.

Discriminatory-This new rule discriminates against low income clients because it would forbid firms to make recommendations based upon income. Is there something wrong wanting to save or defer taxes if you have a low annual income? Why shouldnt low income investors be entitled to save on their taxes? Why shouldnt low income investors be entitled to the security that annuities offer through their guarantees?

Unnecessary, Capricious And Harmful Time Requirements - If protecting consumers is the NASDs real objective why do they require the firms principal to sign off on the transaction with such celerity. I would think that the NASD would want the firms principal to be meticulous and thoroughly study each transaction in as much depth as possible. Such a study may require more than two days. What if during the process of determining the credibility of a transaction the principal needs to talk to the client and/or the broker and they are unavailable? I have not read what happens if the principal takes longer than two days but knowing the NASD as I do I would suspect that the firm will be fined. What happens if the firm has only one principal and his work gets backed up? Will he be forced to approve transactions he may otherwise wish to study if not for this unnecessary time constraint?

Summary:

The NASDs Self Regulatory Organizations Statement Of Burden On Competition Is Flawed - "The NASD incorrectly claims that this new regulation will not result in any burden on competition that is not necessary and appropriate in furtherance of purpose of the Act as amended." This new rule indisputably places an unnecessary encumbrance on competition. It is anti-competitive by placing small firms at a distinct disadvantage to large firms. This new proposal requires that the firms principal conduct a due diligence on all new annuity applications no later than two (2) days after it has been submitted to the firm. This is another attempt by the NASD to make it more difficult for small firms to do business. Small firms are already overburdened with a multitude of unnecessary NASD initiatives. On top of keeping up with those, if the firm has only one principal to approve all new annuity applications within a two-day time period, this new regulation would favor large firms, with many principals. What happens if the principal is on vacation or becomes sick or ill? The purpose of this new proposal is to protect consumers. If protection of consumers is the objective why does the process have to be rushed. Wont that hurt consumers? When things get rushed, dont mistakes usually happen?

The NASD Has A Vested Interest In Putting Small Firms Out Of Business. The NASD can send one of its bureaucrats into a large firm and come out with millions of new penalties/revenue dollars. That same bureaucrat going into a small firm will only produce a fraction of what he can extort from a large one. Like all businesses the NASD wants to concentrate its efforts on its largest accounts. Small firms simply do not produce enough revenue/penalties per-firm as larger firms.

Fallacious Preemption Assertions- The NASD claims the existing rules are not adequate, even though they are almost a carbon copy of this rule, because "after the fact enforcement actions simply do not appear to be sufficiently effective in combating what the NASD has uncovered." Unless the NASD plans on placing a bureaucrat in every office there is no rule that they can pass that will have any preemptive ability to change the outcome of any event. There are always going to be bad apples and if a firm is making unsuitable recommendations now, in all probability they will continue to do so after this new burdensome regulation is passed.

NASDs Secret To Success - I can already see where this ambiguous rule is going. When the NASD conducts their exams on firms, because this new rule is so ambiguous, it will be left up to the subjective judgment of NASD bureaucrats to determine if a firm is in compliance. In light of the fact that the rule is so broad and so unclear you can bet there will be plenty of new fines levied on firms. The NASD has created the best formula for success that I have ever seen. Here is the formula:

Number of rules + Complexity + Unnecessary Time Requirements = NASD Revenue

The more rules they pass and the more complex they make them, the greater opportunity they have to fine firms and increase their revenue. The more they advertise that they are fining firms the more credibility they gain with the public and law makers. What a racket

It is obvious why the NASD did not put this new rule up for a vote with members. It would never pass. Members want the bad apples out of the industry just as much as the NASD does, but making business more difficult will not cause that to happen. The NASD fails to understand is that malfeasance will never be stopped or prevented by making business more toilsome.

Passing this rule will hurt competition, hurt consumers and hurt the industry. Please do not pass it.

Jed Bandes