July 5, 2017
Sir,
I wish to voice my opinion with regard to the new DOL rule.
I am strongly against the rule and its implementation.
While I understand some of the motives behind its advocacy, the primary being the requirement that all who handle and advise accounts do so in the best interest of the client, like so many who try to implement such far reaching rules and regulations they fail to see the even greater damage such poorly crafted rules cause.
The rule is confusing. It is subject to wide and varying interpretation, both of which can have terrible and unforeseen consequences.
Let me give you just one example.
Mrs. Jones, age 79, (name changed for anonymity) has an IRA account with our firm with assets of $750,000. The account is well diversified with blue chip stocks, high grade bonds and mutual funds has provided stable income and growth for many years. Mrs. Jones is extremely happy with her relationship with our firm and her broker, Mr. Smith, who has been advising her and her late husband for over twenty years. The account is handled as a traditional brokerage account whereby the account is charged a commission on each transaction. The account generally does 4 or 5 trades per year plus it also holds some mutual funds that generate some 12b-1 fees. All told, the commissions generated by the account are about $1800 per year. Mrs. Jones believes that these charges are very fair and reasonable and would like to continue the relationship and compensation structure just as it is. I would agree that this compensation structure is reasonable as it represents total charges of less than 0.25% (25 basis points) per year.
The so-called “advisory accounts” that charge a fee only would generally be much higher in terms of fees and commissions. In my opinion, switching such an account to a fee based platform would be an example of Reverse Churning, a practice looked down upon just a few years ago and one in which regulatory authorities would rightfully admonish.
I strongly urge you to repeal the DOL rule or quash in such a way as to make it mute. I would instead strongly support the exorcism of the bad apples in or industry whether broker or advisor using existing and adequate rules and regulations. More rules will not fix the problem. Proper enforcement of existing rules will.
Sincerely,
J. David Coker