Subject: File No. S7-25-99
From: Daniel B Moisand

February 7, 2005

As I am sure you will receive a great deal of comment regarding the technical merits, or lack therof, of the rule. I want to address some of the arguments I have heard from those parties supporting the exmption from the 40 Act.

As far as I can tell the Commission is correct when it noted in its meeting just prior to Christmas that the only parties that supported the rule were brokerage firms. TD Waterhouse being the sole notable exeption that I could see. Even a strong majority of the registered representatives of these firms opposed the rule as did all of the consumers and consumer groups. In addition, every media outlet that I have seen render an opinion on the matter has been overwhelmingly opposed to the exmption. This line up of supporters and opposers alone should send a clear message that the rule is a bad one.

Supporters often cite the Tulley report to bolster the argument that these exempted accounts are better for the public because they better align the interests of the brokerage with the customer. Further they point out that the incentive to churn the account is greatly reduced. All of this is true. The question I have though is are not these same benefits present in an advisory relationship? Of course they are. The public does not lose anything by going to an advisory relationship. In fact they gain much over a brokerage account.

First, they get to know the disciplinary history, qualifications, and conflicts of interest of their advisor. I believe the public has a fundamental right to know these things. Doesnt the Commission? These dislosures, and more, are not required in a brokerage relationship but are required in an advisory relationship. How anyone argues these disclosures are not material to the decision-making process of the consumer is beyond my comprehension.

Second, if supporters are so concerned about, and dedicated to, serving the interests of the consumer, why are they so opposed to an actual requirement to put the clients interests first and to being held accountable for such representations? This is the essence of the problem with this rule. The best way to make sure that the clients interest comes first is to require advisors to actually put the clients interest first and enforce that requirement.

Third, supporters imply that if this rule does not exist the growth of fee-based accounts will stop and possibly reverse. I find this assertion somewhere between silly and disturbing. If one considers the differences I outlined above, the slow down would either come from a reduction in consumer demand or from the supply side of the brokerages. I doubt a customer would tell a brokerage that they did not want the brokerage to put their interests first or know about the disclosure items I mentioned earlier. This is the silly part. Maybe the supporters are afraid that the customer already thought they were getting these things for their fee.

On the supply side, what exactly is the problem? Is it that supporters do not want be held accountable for putting the clients interest first? Or is it that they are afraid to disclose all the things they must disclose under an advisory relationship? Maybe they should be afraid. Their angst about this must make us all suspicious. This is why the argument that the trend toward fee-based services will subside is disturbing.

I keep putting advisor in quotations because someone using a title with the word advisor in it may not be considered an advisor under this rule. There is almost no way the public can view a person with such a title as not an advisor. I am glad to see the Commission is inclined to protect the term financial planner but by allowing other titles that clearly imply, if not explicitly state, an advisory role, the Commission provides an enormous loop hole and fosters continued consumer confusion.

Another argument supporters make is that brokerages already face a lot of regulations and supervision. Again this may be true but it is beside the point. The fact is
the primary source of these rules is the brokerage firms themselves via their self-regulatory organization. If they dont like the quantity of rules, they should change that. I suggest that if there is no requirement to place the clients interest first when giving advice, the quality of the rules are lacking a significant provision. So while there may be a lot of rules, it is a shame that some important ones are missing.

I hope the Commission will see that other than the brokerages, there is almost universal disapproval of this rule and accordingly, the Commission will do the right thing and withdraw the rule entirely. Further, I hope the commission will accept the Financial Planning Associations offer to help in a complete re-examination of regulation of advisors and financial planners. A lot has changed in the last 65 years. Today there are thousands of financial planners, many if not most of whom are also registered representatives, who have voluntarily committed to standards above and beyond suitability. Too bad supporters of this rule apparently do not share that commitment.

Thank you for your consideration.

Dan Moisand