May 6, 2004
I would like to register my strong objection the the proposed rule change regarding 12B-1 fees on several grounds.
We have set up our investment business using the 12B-1 asset trail fee structure because we believe it to be the most equitable and ethical way to receive compesation from our clients.
While we understand the possible potential for abuse, we think that the overall effect of prohibiting the use of asset trail fees would have a negative effect on both the client and the financial representative.
First, the use of little or no upfront charges in favor of the continuing 12B-1 fees ensures that the client will continue to receive god service and advice. It encourages an ongoing good relationship with the client because only as their assets grow do the advisors. The asset trail fees also provide a way for the small investor to gain access to continued advice. The cancellation of 12B-1 fees could price the smaller investor out the advisory marketplace. People who cannot afford the larger yearly charges associated with an RIA, still have access to professional financial advice through the use of asset trail fees.
Secondly, the cancelling of 12B-1 fees could encourage the very abuses that reform is meant to eradicate. If the only way to be compensated for services becomes upfront sales charges, then unscrupulous representatives could be tempted to use churning as a way to increase revenue. Also the out of sight out of mind attitude might be encouraged. With no asset trail fees, there is no incentive beyoond personal ethics, to provide coninued service to a client base. I have always thought that 12B-1 fees acted to help police the industry against these practises.
Finally, I agree that it is of the utmost importance that our industry do everything in its power to provide the most equitable, fair, and level playing field for the individual investor. I believe that detailed fee disclosure will help accomplish that goal. I also belive that taking away 12B-1 fees is an overreaction that would do more harm than good to the industry and the individual investor. These fees enable the small investor to get professional financial advice and for the independent representative to be fairly compensated for his or her services. The cancellation of the 12B-1 fee structure would in my opinion, drive both of these groups out of the marketplace.