Subject: File No. DF Title IX - Investor Advocate
From: Adele B Bolson
Affiliation: CPA and Investment Adviser

August 17, 2010

I have read with particular interest Section 917, study regarding financial literacy among investors, and wish to comment on this important section.

Financial literacy isn't about disclosure. It is about understanding. The more pages in an investment prospectus, the less likely the investor is to read any of it.

I have most frequently observed inappropriate investments to so-called accredited investors, who may very well meet net worth requirements but have no idea whatsoever what they are investing in. I have observed illiquid investments sold to clients who need the money in three years to pay college tuition. Or investments in partnerships that aren't expected to liquidate during the lifetime of older investors. Another rarely noticed disclosure is that this investment may complicate your income tax return, and require you to file state income tax returns in many states that you would not otherwise need to file. These clients just didn't understand. We require drivers licenses to drive a car. We should require an examination to become an accredited investor to invest in complex investments.

Another concern is in the area of transparency of expenses and related conflicts of interest. It often seems the SEC encourages fees that are a percentage of assets under management, failing to see the inherent conflict of interest that this compensation method engenders. I often see this when investment advisers discourage investors from paying off debt, or encourage them to borrow rather than pay cash (such as for real estate), in order to keep the assets under management as high as possible. What would be the result if an investment adviser said I don't want you to pay cash for this vacation home, I want you to take out a $500,000 mortgage so that I can keep my $5,000 annual fee for managing this money?