September 21, 2004
September 21, 2004
Jonathan G. Katz
Securities and Exchange Commission
450 5th Street, N.W.
Washington, D.C. 20549-0609
Re: Release Nos. 34-42099 IA-1845 File No. S7-25-99
Dear Mr. Katz:
The National Association of Personal Financial Advisors NAPFA requests that the Securities and Exchange Commission Commission withdraw the proposed rule: Certain Broker-Dealers Deemed Not To Be Investment Advisers. NAPFA is a trade association of more than 1,100 independent financial advisors who provide comprehensive, Fee-Only financial advisory services to individuals and families.
Nearly all of NAPFAs members are financial advisors who are either Registered Investment Advisers, subject to SEC enforcement, or registered in the states in which they operate. Thus, our members have practical experience abiding by the rules of the 1940 Investment Advisers Act the rules that broker-dealers are seeking to avoid. Our members see the consumer benefits that result from the enforcement of the 1940 Investment Advisers Act, and that is why we support restoring its application to broker-dealers who provide investment advice. The Act provides consumers with the information necessary to make good decisions about whom to select for investment advice, and the protection that comes from having an advisor with a fiduciary duty to serve them.
In reopening the comment period on the proposed rule, the SEC acknowledges that it needs to take into account the nature of the services provided by a financial advisor in deciding which set of rules the advisor must live by. It is clear to NAPFA that broker-dealers are providing advisory services and promoting those services. Even a cursory review of advertisements reveals that broker-dealers attract new clients by promising to give extensive and objective financial advice. NAPFAs position is that brokers shouldnt be allowed to have it both ways: Either they stop giving investment advice, or they live by the rules that govern investment advisors.
Furthermore, and perhaps more importantly, broker-dealers today are not held to a sufficient standard of care for their clients. Broker-dealers are required to merely assess the suitability of an investment for an individual client. Registered Investment Advisers are required to work in a fiduciary relationship with their client i.e., to put the clients needs first and foremost. Withdrawing the proposed rule and making broker-dealers adhere to the same fiduciary standard as Registered Investment Advisers would greatly improve consumer protection.
Ellen Turf, NAPFA CEO
Jamie Milne, NAPFA Chairman
cc:The Honorable William H. Donaldson
The Honorable Cynthia A. Glassman
The Honorable Harvey J. Goldschmid
The Honorable Paul S. Atkins
The Honorable Roel C. Campos
Paul F. Roye, Esq.