March 30, 2005
On May 1, 1995, I offically started as an Investment Broker with my Series 63 and Series 7 license. A lot has happened in the industry since I started.
As an Investment Broker, I am required to read the prospectus cover to cover and make sure that the customers suitabilty and objective is being met on every transaction prior to making any recommendation.
As an independent representative, if my broker / dealer is required to keep a special form for each mutual fund, this would amount to over 6,000 + different forms. Someone is going to have to incur this cost? If it was me, what cost could I include to my customer for creating this new regulation? If I am not allowed to pass on this cost to my customer, then I have to work on a tighter margin and could be put out of business. Since day one I spend a lot of my day reading prospectuses and educating my clients to make sure that their needs are being met.
If I accept a client with 1,000.00 in a loaded mutual fund that charges 5.75, then I would be entitled to 57.50 plus 12-b-1s paid in the 13th month. Since I started in the industry the cost structure has decreased each year for several loaded funds. I wish gases prices would follow the same pattern. The SEC has to remember that I dont receive this full amount. A portion is kept by the mutual fund family, another portion is kept by my broker / dealer, a portion goes to pay my taxes, and the rest is used to cover my expenses and hopefully feed my family. If the SEC wants to issue to the customer the actual amounts paid for up front, back end, or level commissions, why doesnt the SEC issue on the actual commission statement another disclosure on who receives what portion of the pie? Some of my clients think that I receive the ENTIRE COMMISSION WHEN IN FACT I DONT. The burden is being put on the independent representative and is going to motivate the independent representative to help clients that ONLY HAVE A LOT OF MONEY AND NOT HELP THE AVERAGE INDIVIDUAL. Why? The costs are going to outweight the benefit. A lot of individuals could stop investing. What would this do to the markets?
Does the SEC realize that for everytime a new piece of regulation is implemented and new documents must be presented, ADDITIONAL TIME IS REQUIRED TO EXPLAIN THIS MATERIAL TO THE CLIENT and since TIME IS LIMITED, THE COST BURDEN HAS BEEN RAISED FOR THE INDEPENDENT REPRESENTATIVE. Does the SEC realize that setting up a new account could take hours because the SEC wants this NEW DISCLOSURE. The costs outweight the benefits and would discourage a lot of independent representatives from taking on small tickets. This could force a lot of the small investors to either not invest or invest with a firm that could be more costly.
Its amazes me on how a business will charge a new fee, i.e. fuel fee since energy costs have risen. When September 11, 2001 hit, my E&O insurance almost doubled the next year because of this tragic event. The security industry did not absorb the cost but passed the cost on to the representative who in turn had to work on a tighter margin. Unless the client invests more with you or gives you a referral, you are actually taking a pay cut. As an independent representative, I am trying to help the client go from point a to point b while remembering that the objective and suitability must be met each and everyday.
I feel that several independent representatives will be driven out of business if the SEC requires this new regulation. Why? Because the new cost structure will be the DIRECT RESPONSIBILITY OF THE INDEPENDENT REPRESENTATIVE and there is not enough time in the day for the independent representative to keep up on all the documentation that is PROPOSED. Work would have to be sub contracted and would add NEW COSTS to the industry.
Look at the new fees that have happened in the past ten years i.e. inactivity fee or a low balance fee to name a few. Do I receive this inactivity fee. NO. Do I absorb costs? Yes. I have to inform the client to make sure that he / she can avoid this unnecessary fee. I DONT SEE THE MUTUAL FUND FAMILY ISSUING A DISCLOSURE ON THE INACTIVITY FEE STATING: THE BROKER DOES NOT RECEIVE ANY OF THIS FEE.
I have been on the phone for hours discussing the low balance fee with mutual fund families. It is now the client who has to come up with the difference since the mutual fund family now has changed the minimum balance and is requiring additional monies in order to avoid the low balance charge. If a client questions EVERY FEE, I WILL spend so much time informing this client on what the fee structure is that I have actually made less then minimum wage for the day. This is not cost effective when you are a married man with three children. The costs once again outweigh the benefits.
One message is being sent over and over. The cost structure is being passed on from the issuer to the independent representative. The PROPOSAL IS PLACING THE BURDEN ON THE INDEPENDENT REPRESENTATIVE when in fact the independent representitive is not allowed to charge anything else for his / her services. I have to absorb paper costs since I now am required to download forms verses having the forms mailed to my office. I can go through toner in a matter of a few days with all the downloads that I could do. This is a direct cost to my bottom line. I cant charge my client a download fee.
Why cant I charge a compliance fee like any other business charges more when new rules and regulations are passed? Why do I have to absorb these costs each and everyday without gettting a pay raise?
I never thought that I would have to pay for trades that my clients do over the course of the year, i.e. FEE BASED and not have the confirm reflect the fact that the independent representative absorbed the charge for this transaction. I realize that I will get paid on a quarterly basis for my services but am shocked that the SEC does not issue a disclaimer stating that your broker had this amount of money taken out of his / her commission because you placed a trade. Notice its one sided. The burden again is on the INDEPENDENT REPRESENTATIVE.
In conclusion, I wanted to be an independent broker when I was 7 years old. I planned my entire education around going into this field and have received a Bachelors of Science in Accounting, a Masters in Corporate Finance, and just received my Life License last year to make sure that I am not afraid to obtain new credentials to meet my clients ever changing needs.
The sad part is that I might have to leave the field that I love because I am not allowed to pass the charge onto my customer or be compensated for my services since I once again will be forced to absorb the cost.