Subject: SEC Review of Rule 12b-1

July 7, 2007

I am writing to express my concerns about the SEC's ongoing review of Rule 12b-1.

I have been using "C" class shares since their introduction around 12 years ago. This was before the days of true "fee-based accounts" and separately managed accounts (SMAs) were only available at one million and up. Even today most SMAs start at $100,000-250,000, so a client would still need $400-500 thousand to be properly diversified. How can anyone service the smaller investor on a fee basis without "C" shares?

The 12b-1s that I collect cover all my initial planning interviews (generally 2-3) and plan generation, semi-annual performance and position statements, annual reviews, tracking of all transactions, and ongoing consulting on trusts, wills, gifting, business agreements, estate planning issues, etc. In almost all cases, it's cheaper for my client in a "C" share than using my B/Ds fee-based platforms, due to their adding on another layer of fees.

Not only do "C" shares compensate me for ongoing services, they also allow us to reposition and rebalance accounts without new up-front sales charges. It certainly is not fair for a client to pay a front-end for a fund that underperforms and then have to pay it again!

I also fully disclose how I am compensated and my B/D requires their own disclosure form regarding share class comparison.

This is the most tax-efficient way for investors to compensate advisors for fee-based services. It would only harm investors of all sizes if Rule 12-b1 were modified. Maybe you could come up with a universal disclosure form or allow fund companies to change the name of the fees. sense of these essential materials. 12b-1 fees are the compensation financial advisors receive for these efforts.


Howard Townsend, CFP, CLU, ChFC
Townsend & Townsend