August 23, 2004
I am writing to ask that you withdraw the rule that was proposed on 11-4-99, Certain Broker-Dealers Deemed Not To Be Investment Advisers. This proposed exemption for certain broker-dealers from the Investment Advisers Act of 1940 is harmful to the public. Consumers already have a difficult time distinquishing conflicts of interest when they are purchasing investment products and services.
I believe that this proposed rule is harmful to consumers because it creates two different standards of conduct for persons offering financial planning services. Registered investment advisers will have a higher fiduciary standard and there will be a lower one under NASD suitability rules. Brokers will be exempt from being required to disclose conflicts of interest in connection with the offer of financial planning services. In addition, the Rule permits stockbrokers to misrepresent their fundamental sales role as one of a fiduciary adviser receiving a fee for advice.
I do not believe that the public appreciates the nuances of the Rule or understands that a brokerage account means the registered representative, unlike a registered investment adviser, has no blanket fiduciary duty to place the clients interests first or an affirmative obligation to disclose all material conflicts of interest.
I think the Rule creates far more problems than it solves. I believe the public would be better served by requiring broker-dealers offering fee-based programs to comply with current registration requirements of the Advisers Act and thereby restoring a level playing field for disclosure of conflicts and fiduciary conduct by anyone meeting the definition of investment adviser. Therefore, I strongly urge you to withdraw the proposed Rule.
Sincerely,
Marilyn R. Bergen
Co-President,
CMC Advisers, LLC