Subject: File No. S7-25-99
From: Stephen D. Johnson, CFP
Affiliation: President, Johnson Marotta, Registered Investment Adviser

September 22, 2004

Thank you for reopening for public comment the rule proposal, Certain Broker-Dealers Deemed Not To Be Investment Advisers. In reading the hundreds of comments submitted to date, I note with satisfaction that the overwhelming majority ask that you withdraw the proposed rule.

In particular, I found the comments from the Consumer Federation of America particularly apt:

I. The Commission has mischaracterized the effects of the proposed rule.
I1. The Commission does not appear to be taking the necessary steps to create a clear functional distinction between advisory services and brokerage services.
III. The Commission continues to express greater concern for the rules effects on brokers than for its effects on investors.

In issuing the proposed rule, the Commission stated that its intent was to more closely align the interests of investors with those of brokerage firms and their registered representatives. I believe that you have it backwards. In my humble opinion, your intent should be to devise rules that more closely align the interests of brokerage firms and their registered representatives with those of investors.

What is necessary is an environment where all financial services professionals who offer advice are subject to the same standards of conduct and disclosure. By no stretch of the imagination is the obligation of a broker to make generally suitable recommendations fully comparable to the fiduciary responsibility under the Advisers Act of the investment professional who must place the interests of clients ahead of personal interests. Among the many other differences, one of the most important is that the investment adviser has an affirmative obligation to disclose conflicts of interest while the broker does not. Does the typical investor understand this? I think not.

So who supports the proposed rule? The Securities Industry Association. To learn more about their position I went to their website where I found the following statement: Brokers and broker-dealers are subject to tougher regulations from the SEC and self-regulatory organizations the NASD, for example than those that govern financial advisers under the Investment Advisers Act of 1940.

If this were true, why would the SIA so vigorously resist having its members register under the Advisers Act? If they really believe this, I do not understand why they are fighting so hard to keep the proposed rule intact. For the SIA, it appears that fiduciary is the F-word, never -- for them -- to be used in court or in arbitration if it can possibly be avoided. It appears that the brokerage industry believes that its members are better protected in the brokerage sales environment than in the investment advisory environment, and that it would be awkward -- even dangerous -- for its members to be held to the higher standard of the Advisers Act.

But this proposed rule should not be about protecting brokers. The Commission has stated that its primary mission is to protect investors and maintain the integrity of the securities markets. It should be clear by now that the best way to do so is to WITHDRAW THE PROPOSED RULE.