From: Michael Priganc |
Dear Ms. Morris: I am a licensed insurance professional and mutual funds salesperson. In return for providing ongoing service and continuing advice to my clients regarding their investments, I receive trailing compensation much in the same way that I, as an insurance agent, receive renewal commissions on the life insurance policies I sell. This trailing compensation is typically paid under a written plan adopted pursuant to SEC Rule 12b-1. The amount of this compensation is relatively modest; on a $10,000 investment in a mutual fund's "A" shares, the annual "12b-1 fee" that is paid for providing ongoing service equals 25 basis points, or $25. Also, that full $25 is not paid directly to me, it is paid to the Broker-Dealer who then shares it with me according to our compensation agreement. Investors receive substantial value for these fees--in exchange for a small annual payment, they have access to a financial services expert to answer their questions and address their concerns. Without their advisor, investors would have nowhere to turn to (except for perhaps a stranger at the end of a 1-800 phone number) when they needed some reassurance in a shaky market or assistance in rebalancing their portfolios, understanding their investments and the investment choices available. This is where I feel I earn the commissions that have been paid to me by reminding them of why they decided to pursue this course of action in itially and why the should either stay the course or by helping them plot a new course if circumstances are different. This "hand-holding" during times of stress may be the only difference between a client accomplishing their dreams and goals or bailing out at what is typically the worst time for them. I believe the elimination of 12b-1 fees would do considerable harm to those investors who need and want ongoing investment planning advice and counsel. A significant majority of my clients expect our office to be available and to respond quickly to a variety of questions regarding their investments. I have never received complaints from my clients about the small amounts they are charged for the services I provide to them. My clients expect me to be compensated for helping them achieve their long-term financial goals. If 12b-1 fees were eliminated, while the client might save a small amount in 12b-1 fees he or she would end up paying a much larger amount in hourly or asset-based fees to receive the same service. I don't receive service on my car for such a small percentage of what I paid for the car initially. Quite the contrary, I have to pay full costs for each and every repair that is not a warranty issue - and we all know that many issues are not warranty issues! These individually small fees add up to enough to justify the costs of providing ongoing service and advice to existing clients. Without this stream of income, I might have to forgo serving existing clients because I need to find new clients with "fresh money". This hardly serves the needs of my existing clients who you are trying to protect, especially the smaller investors. In effect, I might have to be salesman instead of a rusted advisor. I also believe that the compensation paid through 12b-1 fees helps to reduce "churning". While the very small fee is no match for a new commission, it allows a representative to earn a living helping people to stay put rather than moving their money and incurring new and greater charges. For these reasons, I urge the SEC to reject any proposal to eliminate or restrict the payment of 12b-1 fees to registered representatives for providing continued service to their clients. Thank you for your consideration of my views on this subject. Michael Priganc |