National Association of Insurance and Financial Advisors

Law and Government Relations
Department

Gary A. Sanders
Senior Counsel
______________________
Telephone (703) 770-8192
Facsimile (703) 770-8194

January 29, 2004

Jonathan G. Katz
Secretary
U.S. Securities and Exchange Commission
450 Fifth Street, N.W., Room 6507
Washington, D.C. 20549

Re: Release No. 34-48897; File No. SR-NASD-2003-104; Proposed NASD definition of broker-dealer "branch office".

Dear Mr. Katz:

This letter will present the comments of the National Association of Insurance and Financial Advisors (NAIFA) on Release No. 34-48897, regarding proposed changes to the NASD definition of what constitutes a broke-dealer "branch office". NAIFA is a national federation of over 700 state and local member associations, with members in every congressional and state legislative district. The 65,000 members of these associations are bound by NAIFA's Code of Ethics and are full time professionals in insurance and related financial services and products. Many of these persons sell and service variable annuities, variable life insurance and mutual funds.

NAIFA and its state and local member associations have concerns with the NASD's proposed revision to the definition of "branch office", and believe that the proposal could adversely impact individual agents and advisors, life insurance companies and broker-dealers who are affiliated with life insurance companies. Greater than one-half of the 650,000-plus NASD registered representatives work for broker-dealers affiliated with life insurers, and many of these persons work in smaller locations that are not currently defined as "branch offices" under current NASD rules. The NASD proposal would replace the current function-oriented definition of "branch office" with a numerical measure based on the number of salespersons per office. If the proposal were to become final, thousands of these "non-branch" locations would be elevated into "branch offices", a result that would have significant anti-competitive consequences.

The NASD currently requires broker-dealers to pay a filing fee for each of a broker-dealer's branch offices. Although the annual registration fee per branch office is relatively small (under $100), the proposal would require thousands of current "non-branch" locations to be registered as branch offices, and the aggregate cost of the additional filing fees could easily run into the millions of dollars for limited purpose broker-dealers. In contrast, the proposal would have little impact on full service broker-dealers, who operate primarily out of locations that meet the current definition of "branch office". Full service broker-dealers conduct a full range of securities and financial activities at these offices. Broker-dealers affiliated with insurance companies, however, perform a much narrower range of activities. These companies have structured their operations based on the current definition, and they would be presented with significant new economic and administrative costs in order to comply with the new definition.

In addition to the economic costs, the adoption of the NASD proposal would also result in these offices being subject to NASD inspection and recordkeeping requirements. Another area of concern is therefore the possibility that the financial expense and administrative burdens that will be caused by the change in status of many of these offices from non-branch locations to branch offices will result in it no longer being economically and administratively feasible for the agents and advisors working at these locations to offer variable products and mutual funds to their clients. This can only have a harmful impact on consumers since their access to these products, which often constitute an important part of their overall financial planning, will likely be reduced or eliminated. NAIFA has always supported reasonable regulation of the activities of our members. However, as stated above broker-dealers affiliated with insurance companies perform a much narrower range of activities than do full service broker-dealers, and the securities activities conducted at most agent's offices is limited to taking orders for mutual funds and variable products. As such, we question whether these locations should be subject to the same requirements as the offices of full service broker-dealers.

For these reasons, NAIFA requests that the SEC reject the NASD proposal to revise the definition of "branch office" and keep in place the current definition. In the alternative, the proposal should be amended (i) to waive the filing fee for any non-branch location which becomes a branch office as a result of the proposal, and (ii) the number of permitted transactions in the exclusion found in section 3010(g)(2)(E) should be substantially increased. Thank you for your consideration of our views on this matter.

Sincerely,

Gary A. Sanders