August 24, 2004
This proposed rule should not be adopted for the following reasons:
1. While I dont object to broker/dealers charging fees instead of commissions, they need to be held to a higher standard when they do so. Consumers tend to put down their guards when they pay fees and assume that there are no conflicts of interest. It would not be proper for consumers of fee based advice to not be informed in advance when there are conflicts of interest. Invesment advisors have been doing it for years, and brokers should be held to the same standard.
2. It is very clear that the advice that brokers give in these accounts is much more than incidental, since their advertising sells objective advice.
3. If other investment advisors are required to inform their clients of principal transactions before implementing how will it help consumers who find such securities in their fee based brokerage accounts without being informed?
4. Registered Investment Advisors cannot use client testimonials in their promotions and neither should brokers who choose to charge fees rather than commissions.
5. Unfortunately, many of the major brokerage firms have demonstrated over the past couple of years that they make decisions based on what is best for them and not their clients. Fee paying clients deserve to know that their advisors are held to a fiduiciary standard.
6. The SEC should not be the implementor of a system that puts honest advisors at a competitive disadvantage. What if Advisor A RIA has an initial meeting with a prospective client and properly discloses all potential conflicts of interest and Advisor BBroker discloses none. Wouldnt it be logical for the consumer to assume that the broker has no conflicts?
I dont need to point out to the SEC that more -not less- regulation is the trend today. Small independent advisors are frantically working to keep up with the new rules and, frankly, we dont understand that you are willing to give brokers a free pass from registration in todays environment. Even Arthur Levitt, the original proposer of this rule has changed his position after seeing that many brokerage firms have abused their exemption.
This rule is clearly not in the best interests of consumers and I respectfully requiest that you not adopt it.