October 27, 2010
I have been a licensed insurance professional and registered representative for over 10 years and I do support the new SEC rule 12b-2, and I have always thougght better terms such as marketing and service fees and ongoing sales charge in place of 12b-1 fees to improve transparency in disclosure documents. We operate our practice mostly on advisory fees, but we have clients that don't have assets large enough to qualify for advisory so they have to be placed in 12b-1 fee arrangements, yet we provide them with a lot of service. This rule would mean that we might have to let these clients go.
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. As a result, only upper-income investors who can afford assets-under-management arrangements or higher cost/higher service classes of shares will continue to receive personalized investment advice. This is why we are trying to get smaller clients to put larger amounts of money with us to avoid this problem.
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.
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. Our firm has thousands of small clients and all of these people would get little to no service.
Thanks for your consideration
Craig Volk