Subject: File No. S7-25-99
From: Constance M Dupras, CFP, CPA
Affiliation: Financial Planning Association, Greater Washington Society of CPAs

August 23, 2004

As both a Registered Representative of a broker-dealer and an Investment Advisor Representative of my own RIA firm for 16 years, I use both wrap fee RIA accounts and fee-for-service brokerage accounts the wirehouse exception to manage clients money. Although, both have proven to be successful for clients over the long-term, the fee-for-service account tends to be less costly for the client since it eliminates many of the fees incurred in wrap fee accounts.

My years of experience have led me to use wrap fee RIA accounts for high net worth individuals for whom outsourcing to a money manager makes sense due to the large numbers of holdings to be tracked, researched and advised upon. In most of these cases, the assets under management are high enough to qualify for a discounted management fee.

I have found that money managers really dont want the smaller accounts and, if they do accept them, they apply a cookie cutter approach to the management.

So, for most of my middle-income clients who want to hold a portfolio of stocks and bonds in addition to mutual funds, the fee-for-service approach is more cost-effective than a wrapped fee account.

There may be an occasional year where paying commissions instead of a service fee might cost less, but that tends to happen when we are trying to ride out a down market rather than realize losses. Such a year might be followed with a year of much transaction activity and potential transaction fees as we reposition as stocks regain value. Thus, over a multi-year period, the fee should be less than commissions would have been.

Clients have told me they like the fee-for-service approach because they know when I recommend a purchase or a sale, that I have no vested interest in the transaction. They also like being involved in the decision-making process for the account - unlike the wrap fee accounts where a third-party manager has discretion and the client rarely understands why he is even holding most stocks.

The issue is whether or not they get value-added service for the fee that is charged. At our firm, we make sure they do. We conduct the research to support our buy/sell/hold recommendations. We help educate the client about his investments. We analyze holdings for tax harvesting opportunities and factor the tax impact into recommended transactions. We coordinate their brokerage holdings with other accounts that they may have elsewhere, so we do not unintentionally duplicate holdings.

The FPA argues that Fee-for-Service accounts do not provide disclosures about conflicts of interest. But this is not true when doing business through my broker-dealer. We are required to provide written disclosures about share classes, fees vs. commissions and breakpoints. Our fee-for-service accounts also provide cost basis reporting so clients know if they have gains or losses at an time.

As a long-time practitioner, I have learned that there is no one investment product, asset allocation or compensation method that is best for every client. Our firm only determines how we will charge after we have met with the client, analyzed their situation and discussed the compensation options with the client who makes the final determination of how to work with us. It is important for us to have the flexibility to work with a client whether they prefer to compensate us with commissions, advisory fees hourly or percentage of assets or fees for services.

Ultimately, the issue is not whether they pay a commission, an investment advisory fee or a fee for service. The issue is whether or not the arrangement helps them achieve their financial goals.

Therefore, I urge you to continue to allow fee-for-service brokerage arrangements, as well as transaction-based and advisory-fee based arrangements.