Subject: File No. S7-26-04
From: Kelly Karns

August 2, 2004

  1. We hope the SEC will reconsider allowing banks to accept customer directed trades in custody accounts. It appears unreasonable and against the investors' interests to allow a bank to hold a custody account but to restrict the owner from prudently managing their investments by directing trades directly to the bank . Further, if the investing public is deemed to be adequately protected when banks are custodians and direct trades as trustees, as advisors or as asset mangers why isn't the investing public adequately protected when banks act as custodians and place trades when the trades were directed by the investor himself? It is a normal event for a bank customer to want to use the trust department's custody service to begin a relationship and later name the bank as advisor or as trustee. This reduces the investor's cost and leaves them in control while they build a relationship with the bank and better investigate its services. In addition, customers feel more comfortable knowing the transition to the bank becoming successor trustee is more quickly and efficiently done and is done with more protection for the beneficiaries if the custody account is already at the bank. Thus the customer must be allowed to direct trades in a bank custody account. Forcing the customer to go to the extra time, effort and expense to communicate through a separate broker/dealer seems to do nothing to add to the protection of the investor.
  2. The style and wording of the Proposed Rule reveals a significant cultural difference between the SEC (and the Broker/Dealers) and Commercial Banks (and their regulators). Both industries are well regulated but have a considerably different history. After listening to several bankers from across the nation ask questions of the SEC in an ABA sponsored two hour educational teleconference, it is apparent that the SEC's proposed rules and verbal explanation of them comes from a different perspective and with different presumptions as to intent than those of the traditional trust and asset management services of the banking industry. These traditional banking services are more oriented toward being paid by and working directly for the customer as opposed to representing a product provider or being compensated for transactions. Some examples of specific terms used in the Proposed Rule or in the SEC's explanations that reflect this are "sales compensation" vs... "relationship compensation" and "giving advice to sell investments". We hope the SEC will work even more closely with the banking industry to reconcile these perspectives so that compliance can be more efficiently achieved.