August 25, 2010
August 25, 2010
Elizabeth M. Murphy, Secretary
Securities and Exchange Commission
100 F Street, NE
Washington, DC 20549-0609
Re: Submission of Comments on File No. 4-606
Study Regarding Obligations of Brokers, Dealers, and Investment Advisers
Dear Secretary Murphy:
I would encourage the SEC to AVOID applying a fiduciary standard to broker dealers and registered representatives for several reasons.
1. I have dealt with a number of regulators in the past and, while well meaning, not many had actual experience in our industry. Too often we receive different interpretations of very specific rules from different regulatory personnel. The virtually impossible definition of best as applied to the welfare of each client will rely on the judgment of each individual regulator from his own prospective. This, at best, will lead to inconsistent application of the standard. For example, is best for the client the cheapest recommended product, the product with the best historic performance, the product with the best service and features or product with the best carrier ratings? Although that judgment will initially be made by the registered representative and customer jointly, in the end, it will be the judgment of regulatory personnel that will prevail with the advantage of a backward look.
2. The ambiguity of the fiduciary standard will give any attorney the ability to win almost any claim by claiming the standard has been violated. The fiduciary standard will cause more arbitrations and law suits to be unjustly filed as compared to a more specific suitability standard. The cost of legal services is very high and can drive registered representatives from the securities business.
3. I believe that if the fiduciary standard is applied to broker dealers (BD) it is likely that capital formation in this country will be hampered, stifled or shut down entirely. If a BD is not allowed to sell inventoried product to customers under the fiduciary standard it will hamper the capital for equity or even debt new offerings. This could have a severe unintended consequence on our economy and country.
4. Registered representatives are already subject to extensive compliance regulations. The fiduciary standard will increase an already over burdensome compliance load for registered representatives.
5. If the fiduciary standard is adopted, it is likely many FINRA members may choose to close their broker dealer due to the common standard with their RIA and choose to attempt to move all their customers to an RIA. The consequence will be that many smaller customers will not longer receive the services of those broker dealers representatives as they will not choose to pay annual fees. It is highly likely they are not currently paying such fees. By the SEC applying the fiduciary standards to BDs, it is likely that small investors or large investors not choosing to pay on-going advisory fees, will loose services.
6. The additional liability for the fiduciary standard will potentially drive us out of the broker dealer business and allow us to serve only those who will pay us quarterly fees. It will also leave many customers without service, especially the rural customers who prefer face to face dealings with their registered representatives.
In summary, should the fiduciary standard be adopted, the losers will be the investing public, ourselves, the registered representatives, the broker dealers and even the regulators. The investing public because of more limited availability of services, potentially higher costs (on going fees for RIA vs. no fee broker dealer accounts), broker dealers and registered representatives due to additional regulatory requirements, and the regulators by additional regulations under the fiduciary standard and requirement to apply interpretations without extensive knowledge or experience in the industry.
Thomas A Cosgrove
First Asset Financial
945 East 8th st
Traverse City MI 49686