November 5, 2010
Regarding File Number S7-15-10
I have been a licensed insurance professional and registered representative for over 28 years. Additionally, I am a Certified Financial Planning professional who voluntarily accepts a fiduciary role with my clients because I believe the advice they receive is crucial to their family's financial well being. Furthermore, the vast majority of my clients are not wealthy, but middle income households in the Midwest. It is through this lens that I view the proposed rule to allow broker-dealers to set their own 12b 1 fees and thus believe it will result in a gross disservice to the middle American consumer.
I support new SEC rule 12b-2, which would continue the 25 basis points fee that is used to ensure investors receive ongoing service and advice, and the SECs proposed use of the terms marketing and service fees and ongoing sales charge in place of 12b-1 fees to improve transparency in disclosure documents.
However, I strongly object to the SEC permitting mutual funds to issue a new class of shares at net asset value that would allow broker-dealers to set their own sales charge and commission amount. Competition based on price and cost sounds good but will come at the expense of needed advice and service for middle market investors. As broker-dealers lower their sales charges and fees in an effort to gain market share, it will no longer be financially feasible for registered representatives to continue to provide the level of individualized advice and ongoing service that we currently provide to our middle and lower market clients. Investors with smaller fund account balances will be forced to self-direct their accounts if they wish to continue to own mutual funds because their advisors will no longer be able to afford to spend the time to guide and advise them, leaving discount brokerage fund platforms as the only affordable option for middle and lower market investors.
If the financial crisis of 2008-9 taught us nothing else, it certainly demonstrated that the media and mass marketers will prey upon unsophisticated consumers. Without the assistance of trained adviors, the average consumer will behave exactly as the 2002 Nobel Prize in Economics research by Dr. Daniel Kahnemann proved: individual investors are predictably irrational. We need more financial literacy, not less, and the group currently best able to deliver the education is the advisor community. But we are business people, and must make decisions of how we allocate our most precious resource, time, based upon practices that allow us to continue to offer service to our clients and community.
The people the SEC is trying to protect the most--middle and lower market investors—will be hurt the most, since they will be deprived of the guidance and service they need and deserve.
So, yes, please call the fee what it is, a SERVICE FEE, and put it in bold print so the client understands they are owed something for it. If they are not being served then they can vote with their feet. But please don't subject them to the misguided notion that every discount broker and book/newsletter/sofware peddler currently suggests: that achieving financial security is a simple exercise requiring just the purchase of product 'X'. Please support a business model that will grant consumers professional advice and financial literacy education at a reasonable price.
Laurie Adams, CFP, CLU, LUTCF
NAIFA Illinois President 2010-11