From: J Alan Kerby
I am writing to express my concerns about the SEC's ongoing review of Rule 12b-1. Middle class Americans need the continuing service, guidance and support that are provided by independent financial advisors to achieve their stated investment goals. 12b-1 fees provide a tax efficient means to support the continuing service which these clients require for successful investing. The benefits of 12b-1 fees are numerous and include:
.Expanding Investor Choice - The multiple share classes made possible by Rule 12b-1 give investors choices by providing them with options in how they pay their financial advisor. The flexibility offered by Rule 12b-1 allows financial advisors to tailor a portfolio to their client's specific needs.
.Supporting Financial Literacy - Mutual funds send their investors monthly statements, confirmations, prospectuses, annual reports, and other materials. Financial advisors serve the vital role of educators by helping investors to make sense of these essential materials. 12b-1 fees are the compensation financial advisors receive for these efforts.
.Managing Client Expectations - We all know the common mistakes investors make; buying high and selling low, chasing past performance and harboring unrealistic expectations. 12b-1 fees provide financial advisors with compensation to manage their client's expectations and protect them from falling into this common investor traps.
.Insuring Small Accounts Receive Service - Investment advisory services are simply out of the reach of many small account holders. Financial advisors must have another means of being fairly compensated for servicing these accounts. 12b-1 fees provide the mechanism to insure small investors receive the support and service they need to achieve their financial goals.
.Subsidizing Additional Services - Independent financial advisors offer their mutual fund clients a variety of additional services including: consolidated account statements, periodic portfolio review meetings, quarterly newsletters, cost basis research, preparation of tax returns, and consulting on other financial decisions. These important services are made possible by the subsidy 12b-1 fees provide.
In conclusion, I wonder what purposes your elimanation of these would solve. If you are afraid that the average person is over paying for services, the facts do not support it.
The fact is, you and the NASD are almost making impossible for any planner to work with small accounts. Are there abuses, of course. But have you noticed that crooks never really care what the laws are, they will find a way to fleece people. All you end up doing is hurting the consumer.
We have a small practice, we use both commisions and fees. Neithe are best for everyone. We need to make a living for our families too. If you do away with 12b-1 fees then we will simply need to increase our other fees to compensate. As Congress likes to say, "Revenue Neutral"
J Alan Kerby