July 19, 2007
I am a licensed insurance professional and mutual funds salesperson.
I work with advisors who help their clients regarding their investments, the advisors 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 clients expect their advisor to be available and to respond quickly to a variety of questions regarding their investments. I have never received complaints from clients about the small amounts they are charged for the services that are provided to them. The clients expect their advisor 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.
I have been in this business for 25 years and the expense of 12b-1s are not the problem. The lack of disclosure is the problem. Make the full disclosure the requirement and do not eliminate the use of the fees.
Thank you for your consideration of my views on this subject.