July 6, 2007
I am writing to express my concerns about the SEC's ongoing review of Rule 12b-1. Middle class Americans need the continuing service, guidance and support that are provided by independent financial advisors to achieve their stated investment goals. 12b-1 fees provide a tax efficient means to support the continuing service which these clients require for successful investing. 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.
.THIS IS MY MOST IMPORTANT POINT: 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. In my case this is quite important. I enjoy catering to the small investor, young people just getting started in investing and older clients my on age (70's) needing help making their small portfolios produce more income and maybe a little growth. Without 12b-1 fees I could not afford to consider any service for these accounts after the initial sale. Not all investors are rich and able to provide a steady stream of new funds for investment. A number of my clients are in the 0-10% tax bracket. I am not fee based for any of my compensation and the 12b-1 fees is the only comp ensation I receive for servicing these accounts after the initial load on a sale... and even then because of my compensation contract I only receive 50% of any load and 12b-1 fees generated.
.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.
In conclusion, while it is reasonable to review 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 my efforts to provide needed financial services to middle class American investors pursuing the financial goals.
Sincerely,
Curtis Mohr
Registered Rep
Royal Alliance Associates