Subject: File No. S7-25-99
Affiliation: Executive Director, Mortgage Institute for Financial Services Professionals, Inc.

February 9, 2005

For your consideration:

With the transition by broker-dealers to fees per account rather than commissions per transaction, they have removed the basis for the exclusion that is provided under the Investment Advisers Act of 1940. As a result of moving toward fees per account, the investment advice broker-dealers provide their clients is no longer incidental to the conduct of their business because the link between the investment advice, the subsequent transaction and the compensation received is removed.

Additionally, given this changing structure in compensation, the no special compensation portion of the exclusion no longer applies. Fees per account should be considered special compensation because the fee is not tied to the broker-dealer performing any particular services or tasks. Charging fees per account results in the broker-dealers being compensated even though no specific transaction has taken place. Consequently, if the exclusion no longer applies, then broker-dealers fall under the provisions of the Act.

At a minimum a client should know in what capacity a registered representative is working. The basic question revolves around disclosure. Can the client immediately or otherwise tell in what capacity the registered representative is working regardless of the particular individuals credentials, licenses or job title and can the registered representative document that they clearly defined their role and their relationship to the client? Can the client tell if the representative, regardless of title, is operating in the capacity of salesperson or fiduciary? If the registered representative is giving the client the impression that they are operating as an investment adviser, then they should be held to the investment advisory standards. If it is clear from the facts and circumstances that they are only operating in the capacity of a salesperson, then the client knows buyer be ware.