From: Carl H. Stocker [cstocker@covad.net]
Sent: Thursday, May 06, 2004 1:31 PM
To: rule-comments@sec.gov
Subject: File Number S7-09-04 - Response by Carl H. Stocker

RE:  File Number S7-09-04       RULE 12b-1



I would like to offer the following comments regarding the possible rescission 
of Rule 12b-1.  

While I am sure that consideration for the Rule 12b-1 is being instigated by 
consumer groups whose intentions are well meaning, in most cases it would be 
very misplaced by the SEC/NASD to execute this revision.  However, before 
elaborating on my reasons for continuing the Rule 12b-1 I would like to 
interject that in its original intent Rule 12b-1 was for marketing expenses 
and costs.  I am sure that some of this is still true today.  The majority of 
expense associated with Rule 12b-1 in today’s marketplace is as a result of 
service that representatives give clients and their accounts.  Quite frankly, 
as I have matured in the business and obtained new clients, I do find many 
instances where individuals have not seen or heard from their former 
representative or broker/dealer sometimes for years.  Most of these accounts 
are not of significant size – certainly less than $50,000.  Regardless of 
size, guidance, analysis and recommendations are always appreciated when 
careful and prudent advice is forthcoming from a professional securities 
representative and/or financial planner.  I would certainly be willing to 
consider that as the investment companies and broker/dealers send out 
prospectuses and amendments to those prospectuses that they include in their 
proxy vote envelopes a questionnaire to be returned by the shareholder as to 
the last contact they had from their original representative or current 
representative.  If contact has not been made at all over a specified period 
of time (maybe 2 years) then the shareholder’s request to rescind the 12b-1 
expense would certainly be understandable and probably appropriate.  However, 
if the representative in question can provide documentation that emails, 
mailings and phone calls had been sent to the shareholder then that 
representative would certainly be entitled to the 12b-1 service fee. 

I can only speak for this branch and myself in letting you know that by and 
large 95% of our clients receive 2 – 4 contacts per year in the form of policy 
owner / shareholder service letters, emails, and phone contacts.  I think 
these contacts justify our earning the 12b-1 fees.  However, I am at this time 
beginning the conversion of my “A” & “B” clients to fee-based planning since 
my expenses continue to go up and my net income continues to go down as a 
result of more and more of the broker/dealer former expenses being pushed onto 
the field force.  Many times we make note in a person’s file that we have sent 
out multiple letters, made multiple contacts, and have not heard from that 
individual in years.  Eventually we arrive at the decision (usually after 5 – 
10 years of attempts to contact) that it is not economically feasible to 
service the account any longer because of lack of contact on the shareholder’s 
part.  As an example, a $10,000 mutual fund account which hasn’t been added to 
in years generates only $25 per year in 12b-1 trails, reduced by the payout of 
the representative.  In my case 90% of it is passed on, but after you have 
sent two or three mailings to this individual the expense of the mailings and 
the employee cost to handle such has created a negative return on that 
particular account.  A judgment is continually made as to the potential of the 
client and whether service should continue.  

While I am quite sure that this branch would always be willing to receive any 
individual’s money who is interested in opening up an IRA or 529 College 
Savings Plan, etc., we would also want to know that that relationship would 
continue to grow and be beneficial to both parties.  However, if a single 
$2,000 deposit into a Roth IRA was all that was achieved over a 4 or 5 year 
period of time, then obviously it is not economically feasible for us to 
continue our service.  There has been much discussion as to the validity of 
using A, B, or C shares on any given investment.  I have always indicated the 
usefulness of an A share - provided that the shareholder is serious about 
accumulating a respectable net worth through regular disciplined investing.  
If circumstances do not allow that or if the client’s discipline is lacking 
then possibly the alternative of changing to the C class share after-the-fact 
would afford representatives the opportunity to continue to service these 
smaller accounts.  Clearly wide spread churning would not be in the best 
interest of the public, but would likely be the result of the servicing 
representative’s fair and adequate compensation being taken away.  

I hope my points are well taken and clearly understood.  Thank you for your 
attention to these matters.





Carl H. Stocker, LUTCF, CFS



Check us out on the web at: www.chsfinancialservices.com  

* Securities offered through Mutual Service Corp., Inc., Member: NASD & SIPC.

2412 Old North Rd. #103, Denton, TX 76209

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