Subject: File No. 4-606
From: Kenneth Hamann

August 25, 2010

My personal experience with brokers and investment advisers who do not work for a company such as Vanguard or Raymond James can best be summarized with the following example.
An investment adviser, who I know personally, has his own company that does income tax preparation and financial advising. A mutual acquaintance gave him a portion of her life savings (nearly one million dollars) to invest. The "adviser" put all her money in C-shares divided among three different fund families. Although the individual funds had fair track records, the effect of using C rather than A-shares allowed the adviser to maximize his own revenue flow while costing the investor tens of thousands of dollars over the years. Furthermore by using three fund families, he was able to maximize his commissions while not providing any dollar volume discount to the investor. Since his intent was to leave the money in C-shares, he was not fulfilling his obligation to do his best for the investor.
When I confronted the adviser, he explained that he was adding value by knowing exactly which funds to pick. I have talked to financial advisors from larger companies and all have told me that they would not have been allowed to do what this adviser did.
I am sure this fellow is not alone in his failure to properly advise. Obviously, the NASD auditors are not looking closely enough at his business. The adviser had told me on a previous occasion that his clients are not sophisticated investors and are happy with his service.
There absolutely must be better regulations and more investigation of these smaller dealers.