September 1, 2004
I urge the Commission to withdraw the proposed rule that would deem certain broker-dealers not to be Investment Advisors. I fear that this rule harms consumers by creating different standards of conduct for those who offer financial planning services.
I am not an attorney and cannot speak to the legal questions involved. As a principal of a financial planning firm registered with the Commission I can speak about the potential effects on consumers.
Over the last few years I have been engaged by many new clients who were customers of broker-dealers during the 2000-2002 bear market. Many of those customers perceived their brokers to be personal financial advisors, either because they were told that by the brokers or because they were involved in fee-based arrangements for investment management and financial advice.
The majority of these clients who have come to our firm were hurt, in many cases badly, by these arrangements. They tell me they thought they had someone looking out for their interests, but most received little guidance or help during the bear market as the value of their portfolios plummeted. In some cases they could not get their broker to answer a telephone call over periods of many months. My rough estimate is that the average new client who comes to us from a broker-dealer in this mannner lost at least half of the value of his portfolio during the bear market.
I have seen case after case of bad investment advice and poor management of portfolios for former clients of brokers. I have seen variable annuities inappropriately placed in Individual Retirement Accounts. I have seen senior citizens whose portfolios consist solely of several high technology stocks that are practically worthless. I have seen families who are residents of New York who have been steered inappropriately to 529 plans sponsored by states other than New York.
I believe the confusion over whether or not brokers must act in a clients best interests contribute to these abuses. I suggest that brokers who want to offer financial planning services must register as Investment Advisors and accept the same responsibilities and obligations as anyone else who offers such planning.
Thank you for the opportunity to comment.