Date: 05/13/2000 3:45 PM Subject: opposition to SEC Release Nos. 34-42099; IA-1845, "Certain Honorable Arthur Levitt Jr. Chairman Securities and Exchange Commission 550 Fifth Street, N.W. Washington, D.C. > Re: SEC Proposed Rule Excepting Certain Broker-Dealers from Investment Adviser Act > Re: File No. S7-25-99. > > I am an attorney, financial planner, and investment advisor. I understand you are about to abopt the so-called "Merrill Lynch Rule," permitting brokerage firms to provide a combination of different levels of brokerage/advisory services and fees or commissions to customers without triggering registration under the Investment Advisers Act of 1940 ("1940 Act"). > I am oppposed not just because of the carefully enumerated "talking points" listed below, but because the guiding prinicpal of the SEC has always been full disclosure, and full disclosure means by all, not just by some. Why create an exception now that would be a gaping hole? Merrill Lynch is in fact in the fee-advice business. They are moving as rapidly as they can into it. If you permit them to not register, then what pray tell is the difference between collecting money called commissions vs calling it fees? Is it just a word to scam the public??? > Second, where have the vast majority of customer complaints come from, stock brokerage firms or investment advisors? Do this on a percentage basis and the answer won't change. Those who are good will not fear registration and disclosure; those who aren't so good, want the exception! This issue is simple -- we're either going to have a level playing field or we're not. And it is up to you to see that we do, in fairness to all concerned - customers and competitors alike. Sincerely, Mark Greenberg, JD, CFP > * The proposed Rule hurts the investor, for the following reasons. > -- broker-dealers taking advantage of the exception would not have to disclose as much disciplinary information or other information on the firm as advisers are required to disclose in the new Form ADV, even though BDs will be providing the same non-discretionary advisory services; > -- BD representatives are subject to a less stringent customer 'suitability' rule, and are not generally considered to have a fiduciary loyalty to the client as are registered investment advisers; > -- the required "brokerage account" disclaimer will not be understood by the public and is completely inadequate. The public will be unduly influenced by the heavy marketing of the advisory services instead of the brokerage services and therefore assume that the services are advisory, not transaction-oriented services. > -- BD representatives are not subject to the same state competency requirements (the new Series 65 competency exam) as for those generally providing investment advice to the public on behalf of state and federally registered investment advisers. > > * The proposed rule hurts investment advisers for the following reasons. > -- broker-dealers can use client testimonials in advertising; advisers are strictly prohibited from using them. > -- broker-dealers that are not also registered investment advisers will avoid the costs of compliance required under the 1940 Investment Advisers Act, even though they will be able to provide the same services except for discretionary activities. > -- broker-dealers that are not registered investment advisers will not incur the significant costs associated with major revisions to the new Form ADV, as proposed in SEC Release No. IA-1862; 34-42620. > -- broker-dealers will have less liability because of the more stringent fiduciary duty under the 1940 Act. > > * The SEC's image of championing the investor will be harmed by adopting the rule. > -- Major consumer organizations, including the Consumer Federation of America and AARP, are strongly opposed. > -- Commission support of functional regulation of the financial services industry, as communicated to Congress during hearings on Glass-Steagall reform, will be called into question by the Commission's subsequent support to exempt extensive investment advisory activities from the 1940 Act.