Date: 05/18/2000 8:30 PM Subject: Release Nos. 34-42099 and IA-1845; File No. S7-25-99; Certai Honorable Arthur Levitt, Jr., Chairman Securities and Exchange Commission and Jonathan Katz, Secretary Securities and Exchange Commission Re: Release Nos. 34-42099 and IA-1845; File No. S7-25-99; Certain Broker-Dealers Deemed Not to Be Investment Advisers Dear Mr. Levitt and Mr. Katz: I am writing to state my opposition to the above referenced rule. I have carefully reviewed the proposed rule and the comments of others who have previously written to you. I am supportive of the comments submitted by Mr. Duane Thompson, FPA Director of Government Relations. Mr. Thompson's argument is well reasoned and grounded in both history and law, as well as a practical understanding of the workings of the market place. I have personally been involved in the retail financial services industry since 1983. I am an NASD Registered Principal and an Investment Advisor Representative of Lincoln Investment Planning, Inc. I am past President of the Greater Capital Region Society of the ICFP (NY) and have participated with numerous industry boards, committee's, and industry organizations. I believe it is fair to say that as an active market place participant, serving as a professional who meets with public clients on a daily basis, I have an understanding of the practices that are common today. I am deeply concerned that the rule as proposed will create an uneven competitive playing field. My primary concerns center around the concept of advice. I believe that the SEC's stated belief favoring a trend toward fee compensation and away from transaction based compensation is fundamentally valid. Further, I would not object to "discount" brokerage firms providing trading services for a fee as opposed to a transaction cost. In the practical, competitive, and real world of today's retail financial services and investment market place, this rule will create additional confusion and will be detrimental to the best interests of the public. Today the SEC is concerned about conflicts of interest causing individual representatives to inappropriately generate transactions in order to increase their compensation. Many members of the public similarly are suspicious of transaction compensated brokers, whether their recommendations are genuine and good, or not. A fee based compensatory system does not eliminate the potential for sales abuses, it merely changes their form. Brokers being compensated a percentage of assets under management are inclined to seek to increase the amount of assets they manage. This can also create conflicts of interest with the investor. In a competitive market place the competition becomes one of "who will ge the assets". In a world with this real competitive concern, it is troubling that the SEC may offer one set of firms, those brokerage firms who would choose to be exempted under this rule, the opportunity to compete while being regulated in a manner that is less restrictive than another class of competitors. The key is the word advice. When brokers leave the market of merely executing transactions and enter the business of seeking to accumulate more assets by offering or appearing to offer advice which may be comparable to that of a Registered Investment Advisor, I believe they should be similarly registered and regulated. For example, in the interests of protecting the public Investment Advisor registrants have long been subject to numerous rules. Among these rules are prohibitions on using client testimonials or having actors who pretend to be clients provide testimonials. Investment Advisors are required to provide a full disclosure including disciplinary history and other information, which I understand will offer even more transparency when the new Form ADV becomes effective. Investment Advisors are required to maintain an ongoing suitability standard and are deemed to be fiduciaries who must exercise judgment in the client's best interest at all times. There are many other examples of the differing standards that exist between brokers and advisors. The advisory community has rightfully gained credibility through practices such as not trading securities from their own account with client money's. This of course is a common practice in the brokerage community. It is my belief that the evolving and emerging class of professional Financial Advisors and their adherence to the rules and standards required of fiduciaries and Investment Advisors has created an environment fostering a greater degree of trust and public support than that which is generally experienced by many participants in the brokerage community. Rightly or wrongly the transaction based conflicts of interest that the SEC has come to find, may not be in the best interest of the public have tarnished the image of the broker. With the market place accepting that fee based Investment Advisors can indeed be more objective, clearly it is in the business best interests of brokers to attempt to emulate those who are being successful. If the commission does not maintain rules and standards which are equally applied across all classes of those who seek to offer the same or similar types of services, it seems to me we are inviting great confusion into the market place and a future degradation once again of the publics confidence in their investment representatives. It also seems that differing standards of liability are also incumbent upon these differing classes of service providers. While it is understandable that firms should seek to assume as little liability as possible, is it truly in the public's best interest for an SEC rule to facilitate not only confusion but that one class of competitor will be legally held to a lower standard of responsibility than another? In conclusion while I commend the SEC's efforts to assist the Broker/Dealer community in its efforts to reduce conflicts with its customers, this rule is not the way to accomplish that goal. To truly protect the public all advisors should be held to the same high standards. Transparency and disclosure should be required of all firms. Those firms who would choose to in any way sell their services by promoting the value of their advice and who will be effectively charging a greater fee for those consumers who choose to "purchase" that advice should be required to register as investment advisors. Thank you very much for your consideration of my thoughts. Sincerely, Neal J. Solomon, CFP Certified Financial Planner Solomon Associates Past President Greater Capital Region Society of The Institute of Certified Financial Planners The Solomon Associates Building 15 First Avenue Gloversville, NY 12078 USA