Date:    04/29/2000  9:52 PM

Mr. Jonathan Katz   
Secretary
Securities and Exchange Commission
Washington, DC
     
Dear Mr. Katz:
     
As a "fee-mostly" financial planner, I am concerned about two proposed rule 
changes I have read about under consideration by the SEC.  One would allow 
representatives of major broker-dealers to avoid the disclosure rules that 
apply to investment advisors, and the other would change the disclosures 
required of investment advisors.  The combined effect of the two rules would 
be very adverse to both the investing public and to equality in the 
marketplace.
     
The first change has been called the "Merrill Lynch Rule" in the press.  The 
large national firms have begun advertising themselves as if they were 
offering fee-only investment advisory services.  If they want to do that, and 
offer those services, they should be subject to the same rules as others 
offering similar services, namely the rules applying to RIA's. 
     
They claim an exemption on the basis that such advisory business is 
"incidental" to their main business. While it may be a small part of their 
total gross revenue, the test of whether a practice is "incidental" should be 
its role in the relationship with their clients using the service.  For those 
clients, the advisory services being advertised are not "incidental" -- they 
are central to the relationship, and indeed are the reason the relationship 
exists at all.  If this were not the case, why are the airwaves, newspapers, 
and magazines full of how important is this new way of doing business.  Those 
people are not advertising brokerage accounts, no matter what they might say 
in their filings with the SEC.
     
I have been a financial planner and investment advisory representative for 15 
years.  I have worked with many people who were then or had been clients of 
major brokerage firms.  My experience has been that they are rarely told, and 
even more seldom do they understand, how they are paying for the services and 
advice they receive.  (I have never found a client who understands the 
brokerage firms' favorite tool, mutual fund B shares.)  This is a serious 
failing, and the SEC should promote more disclosure, not less, from these 
firms toward their clients.  One purpose of the RIA brochure rules is to 
assure that clients understand the potential conflicts and motivations of the 
people giving them advice.  Clients need this protection at least as much 
from large firms that manufacture product, underwrite securities, offer 
custody services, and then deliver those products through "advisors" as they 
do from independent advisory firms. 
     
The second rule that concerns me is the proposed revision to the ADV 
language, and specifically the materials to be provided to clients.  The 
language describing the changes suggests that all commissions create 
conflicts of interests of a different kind than any fees do. Paragraph after 
paragraph talks about how customers can be hurt if I'm advising them to own 
an in-house mutual fund, or receive soft dollars, or requiring them to use my 
firm for custody when most advisors don't require this, and on and on.
     
There are two aspects of this line that concern me.  First is the assumption 
that it's really dangerous for a client to work with an investment advisor, 
especially one who takes commissions.  Many times the cumulative amount of 
annual asset-based fees are much greater than commissions paid once.  Maybe 
the services provided justifiy those fees, but fees aren't always in the 
client's best interest.  Every compensation system creates its own set of 
incentives and potentials for abuse.  A good ADV form, coupled with good 
public information, can help clients decide what form of paying for help and 
advice would work best for them.  Sometimes it can be asset-based fees, 
sometimes it can be commissions, sometimes it could be hourly fees.  
     
The second problem with these rules is the even bolder assumption that 
clients of big brokerage firms don't need any on these disclosures.  Did the 
people who drafted the rules on the new ADV form talk to the people who 
drafted the Merrill Lynch exception?  Read the two rules side-by-side, and 
tell me this is a regulatory scheme that makes sense and protects customers 
consistently.   All of the problems customers are warned about in the ADV 
form apply in spades to the services provided under the new "fee-only 
advisory (oops, not really advisory) relationships" pushed by Merrill, MSDW, 
Pru, and the others.  
     
Call me cynical, but the wholesale promotion of "fee only" advice by the big 
brokerage firms suggests that fee-only advice by itself is not necessarily in 
the best interest of clients.  It depends on who's giving the advice, and with 
what quality and attention.  The key is the combination of what the clients 
receive, how (and how much) they pay, and what the rules and restrictions 
imposed on the account are -- not any single factor in isolation.
     
So in conclusion, let everybody who wants to give advice to clients provide 
the same level of disclosure, and have that disclosure be comprehensive.  A 
well-informed public will choose providers that meet their needs.  Some will 
choose big firms, some want independents, some want to do it themselves. Some 
want to pay fees, some prefer commissions, or a mixture. The SEC should 
promote honesty and openness and fairness, and let the market determine which 
model is best.
     
Thank you for your consideration of these views.
     
Sincerely,
     
Richard E. Vodra, CFP
6827 Montivideo Square Court
Falls Church, VA 22043