Certified Financial Planner Board of Standards, Inc.
1235 Jefferson Davis Highway, Suite 602, Arlington, VA 22202 P:303-830-7500 F: 303-860-7388 E: govrelations@CFP-Board.org W: www.CFP-Board.org
June 6, 2002
Jonathan G. Katz
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549-0609
Re: Release No. IA-2028, File No. S7-10-02, Exemption for Certain investment Advisers Operating Through the Internet
Dear Mr. Katz:
I am writing to provide comment to the Securities and Exchange Commission (the Commission) concerning the proposed exemption for certain investment advisers operating through the Internet. CFP Board1 is pleased to provide the Commission with comments it hopes is helpful.
CFP Board commends the Commission for being forward thinking in its application of investment adviser rules. In the six years since the National Securities Markets Improvement Act of 1996 (NSMIA) became law, advances in Internet technology and its use by the public has grown dramatically. The Commission has responded well to this change by considering new types of investment advisory services without impairing NSMIA. However, CFP Board does wish to express some concerns over certain provisions of the proposed rule.
CFP Board is providing below, comment on the specific terms of the proposed rule:
The rule would require that 90% of the adviser's clients obtain their investment advice exclusively through the interactive website. Is 90% of clients the appropriate percentage? If not, what higher or lower percentage should we consider?
CFP Board believes that 100% of Internet Investment Advisers' clients should be Internet based. Firms may take advantage of any provision allowing them to provide some of their clients with traditional face-to-face advice to avoid the prohibition on Commission registration. An investment advisory firm could establish an inexpensive and very basic interactive Internet based advisory program to "run up" their client totals enough to achieve Commission registration through the Internet Investment Adviser exemption, yet maintain a limited number of clients with whom it works in a traditional manner and receives the vast majority of its revenue. Requiring Internet Investment Advisers to maintain 100% of their clients through interactive Internet-based software applications will assure this does not occur.
Should we require that these clients obtain all of their advice from the adviser through the interactive website? Alternatively, should we consider permitting an adviser to use the rule even if these clients obtain less than all of their advice through the website?
CFP Board believes that even if 100% of an Internet Investment Advisers' clients obtain their advice through interactive Internet-based programs, on occasion it will be necessary for other methods of interaction to take place. Technical problems may lead such a firm provide certain pieces of information via phone or even mail. For example, certain documents that would normally be provided via the investment adviser's interactive Internet web site may be sent via mail if a client experiences technological problems. The Commission should consider ways in which an Internet Investment Adviser could appropriately respond to a client in instances where interactive Internet activity is not possible.
We believe that demand for Internet Investment Advisers' services may grow in the next several years, perhaps as part of the growing demand for advice to pension plan participants. Is this expectation reasonable? How many new Internet Investment Advisers are likely to form to meet any increases in demand?
CFP Board does not have information to assist the Commission in determining the number of likely new Internet Investment Advisers that might exist in the future. However, CFP Board does support such innovation. CFP Board's Board of Governors has adopted as one of its ends statements, "Competent financial services are available to the public" through "multiple delivery mechanisms." CFP Board in general approves of rules that foster an environment of increased access to financial advice. The Commission's proposed rules help to further this goal.
If you should have any questions regarding CFP Board, it trademarks or the individuals it certifies please contact me at 703-414-5814 or mherndon@CFP-Board.org.
Michael C. Herndon
Director, Public & Government Affairs
|1||Founded in 1985, Certified Financial Planner Board of Standards, Inc. (CFP Board) is a nonprofit professional regulatory organization that fosters professional standards in personal financial planning so that the public values, has access to and benefits from competent financial planning. CFP Board owns the federally registered certifications marks CFP(R) and CFP (with flame logo) and the CERTIFIED FINANCIAL PLANNER (tm) which it awards to individuals who successfully complete initial and ongoing certification requirements. CFP Board currently authorizes more than 39,800 individuals to use its marks in the United States and 16 international affiliates certify additional thousands of qualified persons in other countries. CFP Board also serves as an educational resource to federal and state lawmakers and regulators on personal financial planning issues.|