From: Bo Bills [mailto:email@example.com]
Mr. Jonathan G. Katz
Dear Mr. Katz:
I am a registered investment advisor in Franklin, Tennessee with clients in a number of different states. The majority of my clients are individuals with many of those retirees. As an advisor, we only invest in no-load mutual funds and so the recent mutual fund scandals have been of particular interest to us and our clients. I applaud your recent efforts aimed at regulating the mutual funds and have been in agreement with nearly all of your proposals. The increased disclosure requirements and your rethinking of the hard 4’oclock close were particularly well received. However, I am writing to respectfully request that you reconsider the SEC’s position on mandatory redemption fees. Much of the current controversy revolves around illegal trading and the short term trading of international funds to take advantage of stale pricing. The proposed mandatory 2% redemption fee (tax) will punish individual investors (the very people the SEC is trying to protect) while providing a boon to the mutual funds. I am aware of no study that indicates that abusive short term trading is rampant and that it is proving costly to individual investors. Similarly, I am aware of no study that concludes that a mandatory redemption fee will curb or eliminate such short term trading. The fees may make it less profitable for those that practice short term trading but at the expense of the vast majority of individual investors.
There are a number of funds that currently impose short term redemption fees but I fail to understand how a mandatory redemption fee is in the best interest of the individual investors with which the SEC is charged to protect. As the rule is currently proposed there is nothing to keep individual mutual funds from instituting holding periods of 6 to 12 months which I hardly consider short-term trading. Finally, the 2% figure seems arbitrary and does not seem to be a clear reflection of the actual costs to shareholders. While no study that I am aware of has shown costs this high, it seems apparent that the mutual fund industry itself believes it is much lower. The Janus Funds recently paid $31.5 to its shareholders for short-term abusive trading which represented .0105% of its average assets under management for the settlement period. The proposed redemption fee is 200 times this amount! Similarly, the settlements of BankAmerica, Alliance, MFS, and Putnam represented .0024%, .767%, .109%, and .0008% of the assets under management. Putnam, referencing the worst net redemption of any fund family in history, went on to say to its shareholder’s that, “In general, redemptions should not have a significant impact on a fund’s NAV or on performance.” The mutual funds themselves admit the minimal impact of redemptions with their settlements and their statements buried in their annual reports though they won’t admit this to the investing public.
In light of the above, I respectfully request that you reconsider the position of the SEC in regards to mandatory redemption fees. For 30 years the SEC has been the champion of individual investors and the proposed mandatory redemption fee is a radical reversal of policy and will bring immense harm to all individual investors.
Very truly yours,
Sam C. (Bo) Bills, Jr.
Sam C. (Bo) Bills, Jr. CPA CFP