November 4, 2010
Regarding the pending change in 12b-2 fees.
I understand the rationale for broker dealers to be able to set their own 12b-1 fees. My concern is that the middle and lower net worth/income investor who may not be able to afford financial advice from a fee-based advisor will be left without a financial professional to work with. From the consumer perspective, the middle to lower income investor will focus on fee reduction and would hence decide to "work with" the broker dealer with the lowest 12b-2 expense. I would anticipate that registered representatives who provide professional face-to-face service will shift to broker-dealers who pay higher compensation as a means to compensate them for the services they provide to this marketplace. So, the consumer will trend to the firms offering lower fees and the registered representatives will migrate to the firms with higher compensation. This leaves the middle to lower income investor with perhaps a long distance telephone relationship with no particular advisor, since the call center personnel will most likely answer calls in the order received and will be subject to higher positional turnover. Even if the goal is to drive down fees by offering broker dealers market competition, in the end I believe the middle to lower income investor loses access to personalized service. Having been active in the industry for over 30 years, I firmly believe that a face-to-face relationship between client and advisor is still to be valued. In final regard, I encourage the establishment of a minimum 12b-2 fee for all broker dealers, in order to provide representative compensation, would retain the client-investor relationship, which in turn, promotes a better served consumer.