July 6, 2007
I am writing to express my concerns about the SEC's ongoing review of Rule 12b-1.
I have worked in the back office of independent contractor broker-dealers for almost 20 years and have observed and been able to serve professional financial advisors as they help their clients achieve their financial goals. Our Reps are not "one and done" product sellers, but are committed to developing long-term relationships with their clients to help then with successful investing for their financial needs. Part of what makes this possible are 12b-1 fees which provide a tax efficient means to support this continuing service.
The benefits of 12b-1 fees are numerous and include:
.Expanding Investor Choice - The multiple share classes made possible by Rule 12b-1 give investors choices by providing them with options in how they pay their financial advisor. The flexibility offered by Rule 12b-1 allows financial advisors to tailor a portfolio to their client's specific needs.
.Supporting Financial Literacy - Mutual funds send their investors monthly statements, confirmations, prospectuses, annual reports, and other materials. Financial advisors serve the vital role of educators by helping investors to make sense of these essential materials. 12b-1 fees are the compensation financial advisors receive for these efforts.
.Managing Client Expectations - We all know the common mistakes investors make; buying high and selling low, chasing past performance and harboring unrealistic expectations. 12b-1 fees provide financial advisors with compensation to manage their client's expectations and protect them from falling into this common investor traps.
.Insuring Small Accounts Receive Service - Investment advisory services are simply out of the reach of many small account holders. Financial advisors must have another means of being fairly compensated for servicing these accounts. 12b-1 fees provide the mechanism to insure small investors receive the support and service they need to achieve their financial goals.
.Subsidizing Additional Services - Independent financial advisors offer their mutual fund clients a variety of additional services including: consolidated account statements, periodic portfolio review meetings, quarterly newsletters, cost basis research, preparation of tax returns, and consulting on other financial decisions. These important services are made possible by the subsidy 12b-1 fees provide.
While it is time to review the update the rule regarding the investor benefits of 12b-1 fees, it is obvious that the repeal of 12b-1 has the potential to cause great harm to thousands of individual investors who need the support and service of a trained financial advisor. As a result, I urge the SEC to allow Rule 12b-1 to continue to support the efforts of our financial professionals to provide needed financial services to middle class American investors pursuing their financial goals.
Sincerely,
Mr. Stephen Russell
Executive Vice President
VSR Financial Services, Inc.