Financial Planning Association

FPA Government Relations Office
1615 L Street, N.W., Suite 650
Washington, D.C. 20036
Voice: 202.626.8770
Fax: 202.626.8233
Web site:

By Electronic Mail

February 13, 2004

Jonathan G. Katz
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549-0609

Re: Release Nos. 33-8347 and 34-48939; IC-26298; File No.S7-28-03; Disclosure of Breakpoint Discounts by Mutual Funds

Dear Mr. Katz:

The Financial Planning Association ("FPATM")1 is pleased to submit comments with respect to the SEC's proposal to adopt the July 2003 recommendations of the Joint NASD/Industry Task Force on Breakpoints that would require enhanced disclosure regarding breakpoint discounts. In light of evidence that investors often fail to receive breakpoint discounts for which they are eligible2, FPA supports the proposed Rule to ensure that investors are not overcharged when they purchase funds with front-end sales loads.

Because financial planners play a beneficial role in offering to clients a disciplined approach to mutual fund investing, we describe below how the Rule benefits professional advisers in performing due diligence as well as how it benefits the public.3

A. The Role of Financial Planners

Making recommendations to clients -- or assisting clients in their own research -- concerning the selection of suitable investments from the more than 15,900 mutual funds currently available constitutes a major part of the professional services offered by many FPA members. In order to create investment portfolios that assist a client in reaching personal and financial goals, this intermediary function between the mutual fund companies and the investing public requires that financial planners have access to timely and accurate information, and that the fund companies comply with all relevant rules. In this regard, we note that registered investment advisers are subject to disclosure and fiduciary standards of the Investment Advisers Act of 1940, offering a consistent "flow through" of protections to clients holding mutual fund shares. We note further that most FPA members are affiliated with investment advisory firms and are also subject to the professional standards of the CFP Code of Ethics and Professional Responsibility.4

The enhanced disclosure requirements in the proposed SEC Rule would assist FPA member compliance with Rule 704 of the CFP Code of Ethics, which requires CFP® practitioners to undertake a "reasonable investigation regarding the financial products recommended to clients."5 Improved disclosure would greatly assist financial planners in evaluating fund options for their clients and in satisfying the general requirements of Rule 704. Similarly, Rule 201 of the Code of Ethics requires CFP practitioners to "exercise reasonable and prudent professional judgment in providing professional services."6

B. SEC Proposal on Breakpoint Discounts

The proposed Rule would, among other things, require each mutual fund to describe in its prospectus any arrangements that result in breakpoints in sales loads, including a summary of the frequently misunderstood eligibility requirements. In addition, the SEC would require mutual funds to describe the methods used to value accounts for purposes of determining whether an investor has met sales load breakpoints. The SEC is also proposing to require a mutual fund to state in its prospectus whether it makes information about its sales loads and breakpoints available through its website.

Although FPA supports these important changes, we note that these additional disclosures are likely to be only marginally helpful to consumers. Anecdotal evidence from financial planners who must carefully evaluate their clients' financial sophistication during the financial planning process suggests that the vast majority of shareholders fail to read fund prospectuses. 7 Absent the professional services offered by financial planners and/or refinement of fund prospectuses, adding to an investor's reading burden may be of little additional value.

FPA, nonetheless, supports the SEC's proposal for greater disclosure about breakpoint discounts. This enhanced disclosure will assist financial planners and investors in understanding the breakpoint opportunities available to them and will have an overall beneficial effect on consumer protection.

We would be pleased to provide any additional information requested by the SEC. Please do not hesitate to call the undersigned at (202) 626-8558.


Neil A. Simon, Esq.

FPA Director of Government Relations

1 The Financial Planning Association is the largest organization in the United States representing financial planners and affiliated firms, with approximately 28,000 individual members. Most are affiliated with registered investment adviser firms registered with the Securities and Exchange Commission ("SEC" or "Commission"), state securities administrators, or both. FPA is incorporated and maintains an advocacy office in Washington, D.C., with administrative offices in Denver and Atlanta.
2 The examination sweep conducted by the Commission, NASD and NYSE between November 2002 and January 2003 revealed that most broker-dealer firms -- in some instances -- did not provide investors with breakpoint discounts for they appeared to have been eligible. Securities and Exchange Commission et al., Joint SEC/NASD/NYSE Report of Examination of Broker-Dealers Regarding Discounts on Front-End Sales Charges on Mutual Funds 14-15 (Mar 2003), available at
3 FPA members hold investment management discretion over an estimated $600 billion in fund assets on behalf of 7.8 million clients. As noted above, many financial planners also make asset allocation recommendations as part of a financial plan.
4 The CFP Code of Ethics and Professional Responsibility (hereinafter "Code of Ethics") requires disclosure of material information relevant to the professional relationship, "Rules that Relate to the Principle of Fairness," rules 401(a) and (b), at 9-10. CFP® certificants also must "act in the interest of the client," "Rules that Relate to the Principle of Objectivity," Rule 202, at 9.

CFP®, CERTIFIED FINANCIAL PLANNERTM and the federally registered CFP (with flame logo) are certification marks owned by the Certified Financial Planner Board of Standards, Inc. These marks are awarded to individuals who successfully complete the CFP Board's initial and ongoing certification requirements. A subsidiary Board of Professional Review is responsible for disciplinary actions resulting from violations of the Code of Ethics.

5 Code of Ethics, "Rules that Relate to the Principle of Diligence," Rule 704, at 14.
6 Code of Ethics, "Rules that Relate to the Principle of Objectivity," Rule 201, at 9.
7 A recent news article suggests only 1 percent of mutual fund shareholders actually read the prospectus. See "Bite the bullet, read the fund prospectus -- it will pay off," December 28, 2003, a USA Today article featured on<.