Subject: File No. S7-25-99
From: Charles D. Meyer, MBA CFP Fee-Only Investment Adviser
Affiliation: Meyer Advisory Services, Since 1981, Objective/Comprehensive/Affordable, We ONLY Sell Advice

September 22, 2004

Comments submitted on File No. S7-25-99
By Charles D. Meyer, MBA, CFP, Fee-Only Registered Investment Adviser
Meyer Advisory Services
Objective/Comprehensive/Affordable
We ONLY Sell Advice
Since 1981
204 Main Street Hampton, NJ 08827
mascdm@earthlink.net

22 September 2004

This rule should be repealed. The reason is obvious if regulators consider the consumers perspective.

My thanks to the S.E.C. for this process that usually allows electronic public comment on matters such as this, and my thanks to the F.P.A. and the other organizations, even though I am no longer a member of any of them, for forcing a formal review of this Rule.

As a small, fee-only investment adviser, I cannot comment on the Rule without looking at the implications of the quagmire of state and federal rules purporting to protect the public of which the Rule has been a part. It also appears to have been fast-tracked, circumventing S.E.C. guidelines for practices and procedures.

Regulatory Chaos

This Rule is just the latest in a long line of well meaning, I think, but myopic reactions. In fact, would it not be more effective if we planned ahead to accomplish consumer protection?

The same old approach has created a system that is:

NOT strategic
NOT integrated
NOT aligned with its mission
more concerned with measurable violations and less able to prevent harm to the consumer.

Dont believe me? Today we enjoy the protection of:

50 state jurisdictions enforcing 50 different securities laws
50 state jurisdictions enforcing 50 different insurance laws
a plethora of multi-jurisdictional regulations on banking, insurance, mortgages, commodities, credit cards, etc.

but NOT ONE measure unified to meet the growing array of products and services being hawked and cross-sold by the advertising media.

How does the consumer benefit?

As far as I can see, the current regulatory patchwork has the effect, if not the intent, of exempting from liability certain:

advisers
lawyers
accountants
bankers
mortgage brokers
Registered Representatives
sales agents.

Why is a lawyer or accountant exempt from registration if she provides investment advice incidental to her practice? If she IS competent to provide the advice, and does so, why should she not be required to register? If she IS NOT competent to provide the advice, then why is she permitted to offer it? And why should I be prohibited from offering insurance advice unless licensed to sell it?

The boiler plate disclaimers distributed with investment products:

inoculate sales people from liability
use language that bamboozles most average folks comprehension
violate the spirit if not the letter of their very purpose by using wording that all but eliminates any chance of prosecution of all but the most outrageous abuses
see to it that a statement neither admitting nor denying is the most common sanction.

Remind me again how this protects the consumer.

Today we are experiencing first hand what happens when the fox is charged with guarding the henhouse:

Scandals abound in the financial marketplace
The reputation of everyones darling - the mutual fund industry - has been tarnished by the wild-west nature of the product-driven market
Even at the state level, Elliot Spitzer has challenged the hallowed ground formerly owned by the S.E.C. As a champion of authentic consumer protection, he is crafting redress measures that put perpetrators on notice
Seemingly annual proposed legislation appears for the N.A.S.D./S.R.O. model as a solution - when in fact, S.R.O.s are part of the problem.

What does the consumer get for her money:

regulatory protection with teeth?
an army of sleuths who ferret out fraud and consumer abuse?
a coordinated effort by state, federal, and local agencies to work in concert to root out boiler rooms, unsuitable products, and inflated sales commissions?
How about uniform regulatory statutes and regulations written in plain language for all to understand and abide by?

Should the consumer invest in:

stocks
CDs
bonds
bank account
mutual funds
investment advice
insurance
tax advice
a 401k plan
an annuity
estate planning advice
real estate
an IRA
commodities
a 529 plan for a childs college
financing or leasing a car, house, or boat
retiring credit card debt
incurring more credit card debt
taking out a home equity loan
filing for bankruptcy
gambling at the track
buying a lottery ticket
accepting another offer for a platinum credit card
just putting food on the table or pay the cable TV or electricity bill this month?

Additional uncoordinated regulation serves to:

supersize the regulatory bureaucracy
raise the cost of compliancewhich is passed along to the consumer
create more loopholes around which the unscrupulous can maneuver
further complicate the mix
deepen the interlocking maze of regulations and counter-jurisdictions.

Computers, communications, leverage, prosperity and mobility have fostered a metamorphosis in the financial industry from a narrow, unsophisticated marketplace into a broad and sophisticated field of products and services - all competing for the same consumer dollar. Yet, while the products may have evolved, is it safe to say that the consumer has kept pace? Certainly their tastes and their consumption habits have come a long way. But news in the area of fraud and abuse is not encouraging: scams still abound but now they are online. Or they involve off-shore opportunities or the executives of the same organizations purporting to protect us.

Yet the protection of the consumer dollar is still managed using the same old reactive model that resembles closing the barn door after the horse got out. Each agency defends its narrow bailiwick each is charged with, dictating which products and services are consumer-safe, and how they may be marketed and sold.

Those who have the least to invest have the most to lose and need the most help. They are being erroneously told they can not afford objective advice. This Rule only serves to reduce protections they might enjoy under disclosure and fiduciary rules.

Meanwhile:

financial planner
investment adviser
fee agent
commissioned agent
fee-only adviser who takes possession of funds
fee-only adviser with power of attorney over accounts
fee-only adviser with limited power of attorney over client accounts
fee-only adviser with no discretion to trade for clients

are terms without meaning or distinction. The extent to which a consumer is at risk is directly related to a method of operation. The consumer and his money has no clue about the slew of ineffective laws out there.

Piling on more laws, especially when they are segmented into classifications based on the type of product sold, fails to make investing any better-understood and dilutes protection.

I propose that the:

SEC
NAIC
NASAA
state attorneys general
state departments of corporations
state real estate boards
state banking authorities
state credit union regulators
and all other agencies, bureaus and entities charged with so-called financial consumer protection

form ONE task force with input from ALL those they regulate and come up with ONE LAW OF THE LAND based on the realities of the 21st century marketplace, warts and all.

Of paramount importance should be encouragement of a broad-based financial consumer education program and plain language mandate for all laws and regulations.

Furthermore, these laws and regulations should be subject to Sunset provisions, ensuring that they are automatically repealed if there is no evidence that they are helping the consumer.

Thank you.