March 1, 2004
I am writing in reference to the proposed SEC Rules 15c2-2 and 15c2-. I along with most of my collegues in the financial service industry beleive that there needs to be CLEAR disclosure on fees and expenses, but it must come in a form that enlightens propective clients not confuse.
We do not want to move toward the mortgage industry where propective clients can not possible read all materials presented to them for their signature.
Many advisors have NOT done a good job in explaining how they get paid. Most if not all advisors provide clients with current REQUIRED copies of the prospectus which explains cost and expenses. NO one thinks that the advisors or the mutual fund companies are working for free. No extra compensation was paid to advisors over the last three years for all hand holding and time spent helping clients work through the most dramatic down market in history.
Over the years the industry has moved away from the large and imposing upfront fees and toward asset based fees. This buisness model allows an advisor to spend the appropriate time with investors to work through their ongoing lifetime investment issues. Advisors must charge for ongoing services and investors MUST be aware what these charges are, but to eliminate the 12b-1 fee is not the answer. To disclose it for what it is I beleive is the answer.
We provide services both on a commission basis through what are called C shares and on a fee only basis. The end result to clients is almost identical. Wether we send a bill to the cleint for our services or we have the vendor in this case the mutual fund company withhold the money the net to the cleint is the same.
Many advisor like myself have built their business models on the ongoing servicing fees the 12b-1 provide. My commissioned clients understand that I must be paid to provide ongoing service. What industry works on a GROSS revenue stream of 1 or less ?
I have a family owned business with, my wife and 2 boys along with 5 other full time employees. I did a study to determine what effect that this bill woudl have on my practice if passed as it is proposed. I would have to immediatly layoff 3 employees and ask my boys to seek another profession.
If this is inacted clients will pay the higher fees than they are currently paying due to the fact that I now will have to collect the fees rather than the mutual fund company deducting them. If this goes through it will drive ten of thousands of advisors out of business. Who then will service the millions of small investors who both need and seek the advise of the investment advisor.