September 22, 2004
Jonathan G. Katz
Securities and Exchange Commission
450 5th Street, N.W.
Washington, D.C. 20549-0609
RE: File No. S7-25-99
Dear Mr. Katz:
The Securities and Exchange Commission should withdraw, and not amend, the proposed rule: Certain Broker-Dealers Deemed Not To Be Investment Advisers. As a consumer, you need to withdraw this rule to best serve the general public.
My wife and I have been clients of Merrill Lynch for two decades. In all our discussions with Merrill Lynch, we thought we were getting unbiased financial advice. We specifically asked our rep, at the request of our son, if they were compensated more for selling one product over another. They said no and that they were not even allowed to sell Merrill Lynch stock because of a potential conflict of interest. They did suggest that we sell our stocks, in which we did little trading, and put the money into a Consults account because this is how the Rockefellers make money. Little did we know at the time that they would make considerably more money for themselves on the money invested as opposed to the miniscule money they made on our stocks.
The stock market and our investments began to decline in 2000. We understood the risks, but our rep assured us that our investments would recover. After my wife died, I asked my son to help with the investments. He then began asking our Merrill Lynch rep questions which I had not even considered. Under his questioning, our Merrill Lynch rep finally admitted that he was not a fiduciary and that he was compensated more for selling some products over others. However, he refused to answer the direct question on whether he was paid more for the specific Consults accounts he recommend to us. If we had known that Merrill Lynch was being compensated more for being fully invested, at least we could have taken that into consideration as we considered our investments. However, we were told that the fee we were paying was for financial advice. We were under the impression that the advice was not connected to whether or not we were invested in equities.
If Merrill Lynch had treated me in a fiduciary manner, I believe the investment recommendations would have been different. They had an inherent conflict of interest. If they kept me fully invested, they made more money. If they suggested that I put more money in cash, they made less money. They served their interests over mine.
Help the consumers by requiring all registered reps to be covered under the 1940 Investment Advisers Act which will require them to be fiduciaries and put the clients interests ahead of their own.
Howard J. Dunn