Subject: File No. 4-606
From: Michael Ernst
Affiliation: Financial Advisor, Morgan Stanley Smith Barney

July 28, 2010

I am generally in support of requiring a Fiduciary Standard among all brokers, financial advisors, bank employees, as well as insurance agents that sell annuities and/or mutual funds.

Please be sure to take into consideration two unique business needs that require careful wording of any Fiduciary Standard rules and regulations.

The first special case is Initial Public Offerings. There are clients who want to participate in every public offering they can access. If the firm is helping to underwrite the IPO, we are prohibited from giving the client any research other than the prospectus, or from giving an opinion on the offering. In addition, while clients can be successful using specific IPO purchase and sale strategies, it typically results in a portfolio that does not at all resemble a "recommended allocation". A poorly written fiduciary standard rule could shut down the ability to deal with this need for business to raise capital and for individual investors to participate in this part of the equity markets.

The second special case is working with company executives who hold a large number of shares of their company's stock. These executives need assistance with their portfolios just like other types of investors, but other government regulations may prevent them from liquidating positions we would recommend they sell under a strict fiduciary standard. There needs to be room in the fiduciary standard to work with clients who, by nature of their employment, are required to maintain allocations that a true fiduciary would not endorse.

Lastly, I hope there is a way to hold bank and insurance professionals accountable as well. My understanding is that some of the terms specific to insurance agents were lessened or removed in final negotiations before the bill was passed. Some of the worst situations I have seen were cases where an insurance agent or a bank sales person sold a client something for which they received a big commission, but the investment was totally inappropriate for the client.

While the brokerage industry is the one taking the media heat, to a person, the brokers I've met are singularly focused on doing the right thing for the client. The greatest disservice I see is when a client is sold something, the banker or agent receives a big commission on it, then they no longer service that client. Just like the talk on inappropriate bonuses based on short term profits made by traders, there needs to be a way to "claw-back" big commissions if the sales person or the financial institution chooses to stop servicing the client.

I have great hopes for a good set of rules - the industry and clients will both benefit if done well.


Mike Ernst, CFP
Financial Advisor
Morgan Stanley Smith Barney