From: Bill Middleton [b.middleton@prudentportfolios.com]
Sent: Saturday, May 04, 2002 8:54 AM
To: rule-comments@sec.gov
Subject: File No. S7-10-02

In response to the proposed rule, Exemption for Certain Investment Advisers Operating 
Through the Internet, the Commission deserves tremendous credit for recognizing and 
attempting to address a potentially burdensome gap in NSMIA. Further credit is due for 
recognizing the potential far-reaching good that internet-based advice can do in 
providing competent, high-quality, investment advice irrespective of geography and for 
acting to remove barriers to this development early on.  

To address specific issues for which the Commission has requested comment:

a.. Does the proposed rule differentiate adequately between advisers that merely use the 
Internet to market their business and those that conduct substantially all of their 
advisory business through the Internet?
  
b.. Will the test for "substantially all" appropriately limit the use of the rule, or 
are there alternative tests that we should consider?
  
c.. 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?
  
d.. 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? If so, what proportion should we require? How would the adviser measure that 
proportion? What burden would this measurement place on the adviser?


Since all of the above questions are related, I will address them simultaneously. I believe 
the rule is intended to primarily intended to address internet-based software that provides
investment advice (specific and non-specific, discretionary and non-discretionary). Perhaps 
if it can be demonstrated that a client has gone through the web-based process, that client 
will be deemed to have conducted business through the internet, even if they subsequently 
have some type of personal interaction. Each client's internet interaction could be captured 
and recorded electronically and subsequently be used as proof of compliance with the 90% 
rule. I believe 90% to be a reasonable demarcation.

 We estimate that as many as 20 advisers may currently be eligible for the exemption 
 provided by the proposed rule amendments. Is this estimate reasonable?
 
I suspect that number may be low and the actual number may be close to 50 initially.

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?
 
I think this is a very accurate reading of the situation. The internet is the only practical 
means for providing quality, specific, advice to self-directed pension plan participants 
with advice in an economical format. Regulatory burden has been a tremendous hindrance to 
the development of this industry so far.  

Quantifying the actual number of likely advisors is difficult, but I suspect it will be 
into the hundreds in a few years.

e.. Are there other types of investment advisers - without assets under management but 
operating in many states - that face similar burdens? How many of these advisers are there? 
In how many states do they typically register? Should we also consider exempting them from 
section 203A? 

I don't believe this to be a viable issue.

One other potential issue to be clarified. If the advisor operates completely via internet, 
including record-keeping, what will determine where the advisor is domiciled?

William P. Middleton