From: Mike Woods [woods01@covad.net] Sent: Thursday, May 06, 2004 10:35 AM To: rule-comments@sec.gov Subject: Rule S7-09-04 comments Jonathan G. Katz, Secretary U.S. Securities & Exchange Commission 450 Fifth Street, NW Washington, DC 20549-0609 Re: File Number – Rule S7-09-04 Mr. Katz, I am writing to you to strongly oppose the proposition to eliminate the 12B-1 rule paid to broker-dealers and investment advisors. I work in a firm that specializes in providing ongoing financial planning services (although we are not allowed to call it that) to educators and other business professionals. While there is a substantial “push” in our industry to shift over to “fee based” planning, we have for many years, and continue now to offer investment planning to our clients utilizing commissionable based products. These mutual funds include both a front end commission which pays us for the several meetings that occur prior to beginning with a new client and the 12B-1 fee which compensates us on an annual basis for the ongoing services which we provide to the families as we monitor their accounts and assist with changes in their plans going forward. While the use of 12B-1 fees was originally created (as I understand it) for the purpose of marketing expenses for the funds, it is generally accepted now that those fees pay us, the brokers, an ongoing stream of income that allows us to provide ongoing financial services for our clients. Without those fees, I would be unable to “afford” to ever speak to many of my existing clients again. I would be forced to either drop them as clients or switch all of my clients to a fee for service based system which would ultimately cost them four to eight times as much for the same services I’m providing to them now. 12B-1 fees pay me a gross amount (before my “pay-out” is calculated) of .25% of the balance of my client’s account on an annual basis. If the SEC eliminates the 12B-1 rule, I will be forced to switch all of my clients into a fee based planning system where for starters I will be forced to refuse to work with anyone with less than $50,000 as that is presently our fee based system’s minimum account size, and secondly for a 50k account we will charge the client somewhere in the ballpark of 2% annually to service that account. If we are looking out for the investor, which is better my present system or fee based planning? Granted, my broker/dealer, my branch and I will make substantially more money moving to a fee for service system, but the investor is the one that pays for it. For some investors, fee based planning is more applicable as the level of service typically is greater in a fee based system, but what about those people who don’t require or desire the extra levels of attention? For all of those families out there with less than $50,000 in invested assets, we will have to slam the door in their faces and say, “I’m sorry I can’t help you plan for your future so that someday you will have the necessary 50k which you will need to begin paying me a higher fee to be of assistance to you.” There are possibly many brokers out there that are being paid a 12B-1 fee that are providing NO ongoing services to their clients, but they won’t stay in business. Firms like ours that do service their clients will eventually meet the people that are seeking better guidance and we will take over the accounts and provide to the clients what they deserve and are paying for. Without the 12B-1 fee for clients under the limits of the fee for service accounts brokers will be forced to either not service them and thus the American citizens will lack what they need most, which is professional guidance and counsel, or as brokers we will be forced to make unnecessary trades and “churns” in the accounts that will provide us some form of compensation which will pay us to take the time to speak with our clients. I enjoy what I do, but I refuse to do it for free. I believe that eliminating the 12B-1 fee would cause substantially more damage to investors than positive benefit. If I told my staff, “I’m going to pay you for the first time you speak to a person on the phone, but every time you take a call from someone you have already spoken to you will be doing it on your time and I will not pay you”… How many of my existing clients do you think they would take calls from on a daily basis? If you were one of my existing clients, how would you ever get any service from my firm? We offer an invaluable service for our clients. We help people save for their futures so that they will not be forced to rely on government programs. I am appalled and insulted that it is even being discussed to take away the minimal amount of compensation that I receive to provide that essential service. This proposition is not acceptable. The SEC will be at fault for destroying the ability for the vast majority of investors who utilize the services of professional counsel to receive that counsel. Who will do it then? America’s savings rates are already miserable. Make it impossible to obtain help from a professional and what will people do? Mike Woods, LUTCF, CFS Carl H. Stocker & Associates * Securities offered through Mutual Service Corp., Inc., Member: NASD & SIPC. 2412 Old North Rd. #103, Denton, TX 76209 940-566-1212 - ph 940-381-3074 - fax