Jul. 31, 2018
Paul Hynes, CFP®
TO: Hon. Jay Clayton, Chairman
United States Securities & Exchange Commission
RE: Proposed Rule File No. S7-08-18
Dear Mr. Clayton:
As an investment advisor, I am excited and encouraged that the SEC is working hard to help consumers of brokerage and advisory services make informed decisions. This proposed set of rules takes some steps in that direction. However, I believe more clarity is needed. The breadth and variety of different providers of financial products and services can be confusing to some consumers. The rule should reduce that confusion rather than augment it. So, let me outline what services I provide as well as those I don't provide, in hopes that this will help clarify the role of investment advisors and the character of investment advisory accounts.
My firm, of which I am 100% owner, is a SEC registered investment advisor. The firm has no broker-dealer affiliation and none of our advisors are dual-registered. As such, we are always held to the fiduciary standard in our relationships with our clients. We don't sell any products nor do we receive any commissions. We can't since none of us have a securities or insurance license. I spent 22 years as a registered representative with a broker-dealer firm before starting my own RIA firm. So, I've seen both models up close.
Our business is to provide investment advisory services on a discretionary basis for a fee, which is based on a % of AUM. We also provide financial planning services for a fee, which is charged as a one-time project fee. I am a CFP certificant. Financial planning is approximately 5-10% of our business.
Appendix E. of the proposal lists certain "Conflicts of Interest" on page 3.
1. Yes, we benefit from the advisory services we provide our clients. That's our business. And, the fees we charge out clients are the only compensation we receive. Our clients are informed of the nature and amount of these fees.
2. No, we don't make extra money by advising our clients to invest in certain investments because they are managed by someone related to our firm. We have no proprietary products.
3. No, we don't have an incentive to advise our clients to invest in certain investments because we receive revenue sharing from such. We have no revenue sharing arrangements.
4. No, we don't ever act as a principal in any transaction from our own accounts.
If there are any material conflicts, they are clearly listed on our ADV.
In my opinion, the form shown in Appendix E is confusing. It lists conflicts that are present in the broker-dealer model and the dual-registrant model, but not in the investment advisor model. The form should say the following under the section called "Our Obligations to You." My suggested changes are shown in bold italics.
We must abide by certain laws and regulations in our interactions with you.
" We are always held to a fiduciary standard that covers our entire relationship with you.
" Our interests can conflict with your interests. If so, as a fiduciary, we must eliminate these conflicts or tell you about them in a way you can understand, so that you can decide whether or not to agree to them. Such conflicts, if any, are clearly listed in our Client Brochure, also known as Form ADV, which we will provide to you at no charge prior to the establishment of our advisory relationship with you.
In the section under "Fees and Costs" on page 2, there is a misstatement in the second bullet point which reads as follows:
"Some investments (such as mutual funds and variable annuities) impose additional fees that will reduce the value of your investment over time. Also, with certain investments such as variable annuities, you may have to pay fees such as "surrender charges" to sell the investment."
This is mistaken in that an investment advisor cannot sell variable annuities. The sale of variable annuities requires a series 6 or 7, which investment advisors don't have unless they are dual-registered. This form is not for dual-registered persons. Surrender charges only apply when commissions are paid to a broker on the sale of the variable annuity product.
An investment advisor may offer a variable annuity product to a client as a tax deferred investment vehicle. When doing so, there are no commissions paid by the client nor earned by the investment advisor. And, there are no surrender charges.
It is my goal to help the Commission achieve one of its goal - to protect investors. I applaud the efforts of the Commission and sincerely hope my comments are helpful.
Thank you!
Paul Hynes, CFP®
President, CEO
Hynes Advisory, Inc.