Subject: File No. S7-09-09
From: JK Engle, CFP
Affiliation: Fee Only Fiduciary RIA

July 7, 2009

File S7-09-09
The Administration has recently proposed that all investment professionals be the clients fiduciary.

In re the proposed rule, the carrot works better than the stick. Simply allow advisers who sign the fiduciary oath to continue to bill in the normal fashion of every mutual fund in the world direct debit from the clients account. Non fiduciaries would have to send statements, or bill in some other way.

I generally support the Administration, and its focus on helping small businesses.
The proposed regulation as written is biased AGAINST small business like fiduciary Registered Investment Advisors. (RIAs). It furthers the advantage that the Big 4 brokerages and the hedge funds have.
Heres why: There is no proposal that states that giant mutual funds, like Fidelity, cannot direct debit their management fees. Fidelity debits fees, and the clients dont even know how much those fees are.

Fee Only Fiduciary RIAs send clients paid receipts with real dollar amounts on them, and debit directly from the clients money market holding. Both the client and the discount brokerage custodian get a written billing statement.

Im not against the 3% limitation (or even lower) on fees, nor am I against regulations that would limit billing to 4 times a year. Id even go along with having to send a copy of statements to the SEC. Reasonable limitations on billing are fine.

But deeming a fiduciary adviser to have custody flys in the face of common sense.
The third party discount broker custodian has custody, and protects the investor against misuse of their funds.
Sure, some RIAs own a broker dealer, and may well have custody. Madoff had it.

But most fiduciary advisers do NOT have or want custody.
If the Administration wants more fiduciary advisers, it will NOT get them by sticking them with custody, when 99% of advisers do not have it.
Clients prefer to pay their adviser by direct debit, versus having to write a check.

Fee Only RIAs are the ones helping the middle class, and many of us are middle class ourselves. It is non-sensical to make our service less available to the public, or even drive us out of business.
Implement this rule, and the Department of Justice Antitrust Division will soon be having to sue the big 4 brokerages because they will have 90% of the market, and fees to investors will rise substantially.

JK Engle