July 19, 2007
The following is a "form letter" created by my professional organization, NAIFA. I have kept it in tact because I fully support it's content. However, I wanted to add my own words to the front of the message.
I believe it is important to keep investment fees down. Investment fees not only erode the earnings of any investment but also create enormous lost opportunity costs into the future. But I also believe that the advice I provide my clients has value and should not be perceived as "free".
If you use an attorney, you pay him or her a fee. I'm sure you have a CPA as well and you pay him or her a fee also. These fees are there to keep the professional in business so they can continue providing you advice. The fees aren't fun to pay, but you do so willingly because you feel you are receiving value.
What I don't understand is why the regulators and my own SRO is trying to put me out of business by reducing the amount of money I can collect for the services I provide. As it is $25 on a $10,000 investment is not much to pay for the advice I offer. If these fees go away I will have to charge an annual retainer for my advice which will be much more than $25 per year I can assure you.
If 12b1 fees have lost their original intent it's okay with me to do away with them, but be sure you replace it with something else that pays me for my time. (And I hope to get a pay raise...)
Here's the form letter...
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 insurance agents receive renewal commissions on the life insurance policies they 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. 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.
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.
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.