From: Jonathan M. Pearlstein
Sent: June 13, 2007
Subject: 12b-1

As a planner who helps people manage their finances, a good portion of the revenue that I earn comes from 12b-1 fees. Without that revenue, one of two things would happen. Either I would have to charge annual fees to clients for all of the work I am currently doing 'for free', or take on many more clients and not give them the service they need. The 12b-1 fees I get are not some kind of bonus, but essential revenue that allows me to help people keep on top of their investments and rebalance. Without the 12b-1 fees, I would actually lose money (I would have to pay ticket charges to make changes, and would not be getting any other revenue) by helping people manage their finances, and the unintended consequence of a change like that is many people would be getting neglected or would be receiving poor advice. Does some of that happen anyway in the industry? You bet it does, but that trend would only accelerate..

I come across clients all of the time who were stuffed into investments and then ignored. The allocations were wildly inappropriate or just grew out of whack over time. The broker or advisor probably figured that they had made their money. I see that there is a responsibility that comes along with collecting that revenue, and that responsibility is to help people manage their investments properly. If these costs are eliminated, client complaints and frustration will accelerate because brokers will have less incentive to help people manage their investments.

I do understand that the best interests of clients and investors need to be taken into account, and I also understand that the intention of this fee originally is very different from practice today. Ultimately, protecting the smaller investor and average people have to be critical purposes, and eliminating a form of ongoing compensation (trail) for advisors will change the entire landscape in unintentional ways. I would have to find another way to make up that revenue source, which may have a greater impact on some clients than others. Maybe fund companies would adapt, maybe planners and advisors and brokers would adapt, but the reality is that some form of ongoing revenue is critical in order to allow me to help people meet their goals.
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Jonathan M. Pearlstein, CRPC
Associate Financial Advisor with the practice of Richard K. Juergensen

Juergensen & Associates
A financial advisory practice of Ameriprise Financial Services, Inc.