Subject: File No. S7-25-99
From: Mark Sievers
Affiliation: President, Epsilon Financial Group

August 24, 2004

I am writing to object to the rule Release number 34-50213 the SEC has proposed that exempts broker-dealers from the Investment Advisers Act of 1940 when offering fee-based brokerage programs. I encourage the SEC to withdraw the proposed rule.

This proposed rule simply provides a way for broker-dealers to circumvent their responsibility to the public. It reduces disclosure. In the aftermath of the recent securities industry scandals, many of which are still unresolved, the role of the SEC should be to promote more disclosure and fewer loopholes. The goal should be responsibility, accountability and transparency, not exemptions that lay the foundation for more abuses of the public.

The specific circumstances of this proposed rule also contain problems which deserve attention.

1. The SEC has failed to act in a timely manner letting this proposed rule sit since 1999 with no clear deadline for taking action after proposing the rule. This is not in compliance with the Administrative Procedures Act.

2. The SEC has failed to provide clear regulatory guidance. During the lengthy intervening period since the rule was proposed, the Commission has received numerous comment letters requesting clarification on what it meant by solely incidental advice under the rule. The Commission has failed to provide clear guidance to affected parties on other key terms in the rule, including the distinction between full service brokerage and financial planning services.

3. The SEC has both interpreted and applied incorrectly Discretionary Exemption Authority. By creating a new class of exempted broker-dealer under the rule, the Commission has misinterpreted Congressional intent by eliminating a statutory special compensation element that required broker-dealer registration under the Advisers Act for nearly 60 years. Further, by not adopting a final rule, the Commission also failed to apply its exemption authority consistent with the requirements of the Advisers Act.

4. The SEC The Commission has not provided any evidence of enforcement activity or oversight with respect to the de facto exemption of broker-dealers under the Advisers Act, which has been in effect for the past four years. This has happened despite the marketing emphasis by brokerage firms on investment advice and financial planning. In addition, the rule has created problems with reverse churning of the fee-based brokerage accounts, a disturbing development under the rule that is being investigated by the NASD.

5. The SEC has applied inconsistent disclosure standards for broker-dealers under federal securities laws by recently adopting new rules related to disclosure of broker-dealer conflicts of interest with respect to mutual fund transactions and initial public offerings, among other investment products, but not in connection with principal trades and other individual securities transactions under the rule.

The proposed rule will not lead to a good result, especially to better treatment of the public. I recommend that the SEC withdraw the rule and focus on rules that lead to responsibility, accountability and transparency. With such rules the public will have more relevant information and be able to make better decisions regarding its financial and investment matters.