July 22, 2004
Re: Office of Investor Education and Assistance
According to this morningís Washington Post, thereís a movement afoot to exclude certain groups or categories of folks, specifically Broker/Dealers, from the "Advisors Act", and I think this is a horrible mistake. Iíve worked with both tax qualified and non-qualified retirement plans since 1981, and while Iíve never been a licensed investment person, Iíve worked with many individuals and institutions over this time representing the financial investing end of retirement planning. The focus of my work both past and present remains with ERISA plans, and Iím not as familiar with SEC Rules & Regulations as I am with the ERISA rules. That being said there are a couple of things that have always been a mystery to me. Why should anyone or any institution, including insurance companies, who "manage" money in any retirement plan, be excluded from fiduciary requirements? Another words, they get to play with the money, invest it as they see fit, and not assume any responsibility for their actions. As a small business owner, I am forced to hire experts to help me manage my business. If I were the plan sponsor of a retirement plan, I would feel equally compelled to hire experts to help me manage the assets within that employee trust. I would expect any financial advisor or insurance agent representing themselves as "financial experts" and "financial planners" to be held to a higher standard because of their expertise. When I hire an attorney, I expect them to conduct themselves in accordance with certain ethical rules of conduct. When I hire an accountant, I expect them to conduct themselves in accordance with their standards of conduct and behavior. When I hire any financial advisor, I expect them to conduct themselves as professionals, be responsible and held accountable. This seems reasonable to me and Broker/Dealers should be no exception.
A second part of this mystery to me is why the SEC does not require complete and full disclosure and accountability of all the fees associated with securities transactions. Federal Banking Regulations require that if I deposit $100 in a savings account and the bank debits a monthly service fee of $3.00, they account for this money. The SEC has no such similar requirement and this lends itself to the perfect opportunity for embezzlement with no accountability requirement whatsoever. According to the last estimates Iíve seen there is over 1-trillion dollars invested in retirement funds in America. This is a huge temptation for the mutual fund companies, broker/dealers, banks, insurance companies and anyone else pretending to be "investment advisors" or "financial planners" to siphon off small percentages for "management and administration fees" without having to disclose any of those transactions. This creates havoc when trying to balance or account for the money being held in "trust". Iíve had qualified retirement plan accounting firms complain to me that even they cannot track down where the money went. This is not a small thing. This is a huge thing and itís a huge mistake of the SEC to presume financial institutions will be honest and forthcoming as witnessed by the recent failures of the major mutual fund companies. If theyíre not required by law to disclose it becomes obvious they will not, and in some cases there is no way to pry the information out no matter how hard or diligent one tries. Several years ago the DOL published a "Fee Guideline" as a way for qualified retirement plan sponsors to start at least looking for some answers. However, without the cooperation of the SEC in making such disclosures mandatory this becomes an exercise in futility.
Consequently, I am begging you to consider two specific very important rules: First, anyone who has any dealings with any ERISA plan, financial investing, trading, insuring or any other manor of management or administration of funds being held to the highest standard of law in our country called "Fiduciary Governance/Care". No one should be exempt under any circumstance whatsoever and they should be held accountable and responsible to their customers/clients. The size of the transaction is not relevant for this purpose albeit one share of stock or several million shares of stocks, bonds, or any other financial instruments under the control of the SEC. Second, accountability of every trade under the control of the SEC should be disclosed completely accounting for every cent to all the interested parties. No one person or organization should be exempt under any circumstance from complete and total accountability of the absolute highest standards.
Thank you for your time and consideration.
Rick Blain, Principle
Employee Benefit Consulting Services
21042 Horsetree Circle
Trabuco Canyon, CA 92679