Subject: File No. S7-09-04
From: James A Matzger

March 26, 2004

I would like to take a strong exception Senator Fitzgeralds, Senator Collins, and Senator Levins positions on 12b-1 fees. I have been a financial advisor for over 30 years. I started as a stockbroker with a major firm, obtained my CFP designation, and learned over the years how to work with my clients to help them achieve their financial goals. Fifteen years ago I became an independent advisor and over those years, my clients and I have prospered. Using an asset allocation approach with a value orientation helped my clients side step the bursting of the technology bubble. Over the thirty years, I have never been sued and have not had a major complaint of any kind.

Advisors are always wringing their hands over how they wish to be compensated for their work. Clients too have differentiated between advisors based on how they wish to pay for services. The most important thing is how well the client is being advised. If they are getting good advice they will place more funds with the advisor and will refer others to him. If they get bad advice they will go elsewhere. Bad advisors are eventually forced to leave the field.

Over the years I have offered investors A shares, C shares, fee based advice, and fee based advice with a reduction in fees for any commissions paid. The bottom line is that I get paid about 0.4 of assets for my advice. Part of that is represented by commissions, part by fees, part by A share trails, and part is paid by C share trails.

Given the poor performance of most investors who do not use professional advisors, my clients find that it is worth their while to pay me .4 per year for my guidance otherwise I wouldnt have any clients. The 12b-1 trail component of my income helps me plan my business so that I can hire employees, keep my broker dealer firm in business, pay rent, and hopefully eventually sell my business and retire.

This mutual fund plan absolutely destroys professionals like myself and will decimate the industry and lead to more unemployment. Pension and profit sharing plans need advisors and they are paid for with 12b-1 fees. Firms like Schwab provide a funds supermarket that is funded by 12 b-1 fees. The 12b-1 arrangement is a win win for clients. Clients have an easy way to pay advisors for their advice that is clean since they dont have to worry about whether the fee is deductible or not. The 12b-1 fee is actually lower than the fees that the client would pay if he had a managed fee based account. Managed fee based accounts are more costly to administer and are not appropriate for smaller accounts that would be most helped by having an advisor.

Firms like American Funds have low expense ratios even when 12b-1 fees are figured in. They also limit 1 trails on C shares to 10 years. After 10 years they revert to .25 trails. Surely this is not overly burdensome to fund shareholders.

I will be retiring if this bill passes and I imagine many others will too. That will mean the closing of advisory offices accross the country. Meanwhile, paraplanners and other support staff will also be terminated. Clients who wish to use advisors will find that advisors will have to charge them more in order for the advisors to stay in business. Less scrupulous advisors will take money from mutual funds and find other less appropriate vehicles for their clients.

This mutual fund bill is already tarnishing an industry that by most standards is one of the most ethically run businesses in the world. Perhaps the Senators time would be better spent making the government run better rather than messing with a business that works.


Jim Matzger