From: WILLIAM BAXTER [bbax_1@msn.com] Sent: Friday, January 31, 2003 2:35 PM To: rule-comments@sec.gov Subject: File No. S7-25-99 VIA EMAIL Jonathan G. Katz Secretary Securities and Exchange Commission 450 5th Street N.W. Washington, D.C. 20549 Subject: File No. S7-25-99 Dear Mr. Katz: I recently learned of the above referenced proposed rule. After review I have a few, brief comments from the broker-dealer advisor perspective. Let me highlight the key issues: Customer Focus At several points in the executive summary, the following phrase is used: "aligning their [customers] interests more closely with those of the brokerage firm and its registered representatives". Broker Dealer Investment Advice The executive summary makes reference to "incidental" advice provided by broker-dealers. My desk reference defines incidental (adjective) as follows: "1) Occurring or likely to occur as an unpredictable or minor accompaniment (see synonyms at accidental); 2) Of a minor, casual, or subordinate nature. First, the mission of the industry and its regulators should be to align the interests of the broker-dealer more closely with those of the client. The wording used in the executive summary is backwards. Second, as an active participant in the financial services industry and as a current employee of a broker-dealer, the notion that the advice we give is incidental (if I understand the definition of the word) is complete balderdash. It is disingenuous for firms to suggest their advice is ever incidental. The client needs and deserves quality investment advice, and that is what broker-dealers offer and advertise, not just advice about products. The scope of advisory services broker-dealers provide extends into all areas of a client's life, as the recent "Total Merrill" ads clearly evidence. The premise that fee-based accounts are just another way to pay commissions or that registered investment advisors do not evaluate products and make financial product recommendations to their clients is not the practice, how can it be. When the client needs advice, does the trained and qualified advisor serve the client by saying "whoops! I can't talk to you about that, that is advice." The situation current regulation has created, and the tactics businesses have used to negotiate them create a farcical operating environment for all advisors. Licensing standards also are not currently aligned with the client's best interest. The purpose of licensing is ostensibly to ensure that practicing advisors have attained a reasonable command of the required body of knowledge for competency. Allowing anyone that passes the registered investment advisor exam to hang out a "financial advice" shingle with the level of knowledge of financial markets, securities, settlement, funds, and derivatives that the series 63, 65 or now the 66 measures is not adequate. Major broker-dealer firms require their advisors to hold the series 7 plus the 63 and 65 (or now, the 66). This is a much more rigorous standard. A pretense has been created by multiple regulatory standards: advice is not advice when given by a broker-dealer, registered investment advisors do not make securities recommendations. This creates confusion for the client, and causes legal and compliance officers of firms to craft incomprehensible policies for advisors to follow. The answer is not to relax the standards for some of the participants, however. In my opinion, the foregoing demonstrates that the client is best served by common standards for all engaged in providing investment advice, regardless of where they work. To do otherwise does not serve the client, and therefore is not consistent with the mission of putting the client's interests first. Thanks William M. Baxter Financial Advisor