November 2, 2010
I have significant concerns about a part of the proposed rule that the SEC claims would "encourage retail price competition." This would be accomplished by allowing mutual funds to establish new share classes that would be issued at net asset value, without fund managers setting any sales commissions or sales charges. Instead, individual broker-dealers would be able to set their own commission and sales charge amounts that would be based on the level of services they provide, and these fees would be charged directly to the investor.
The SEC has indicated that allowing b/ds to compete based on sales charges and the services they provide will create a level playing field and lead to reduced costs. I am concerned that allowing broker-dealers to compete based on the commissions they charge and the services they provide will lead to a "race to the bottom" causing middle market investors to be overly focused on price and ending up without access to valuable advice and ongoing account services. As b/ds slash their fees in an effort to gain market share, it will no longer be financially feasible for registered reps to continue to provide the level of individualized advice and services currently offered. Investors who can afford assets-under-management arrangements or higher cost/higher service classes of shares will continue to receive personalized investment advice, while middle market investors will be deprived of the guidance they need and deserve.