July 7, 2007
I am writing to speak about my experiences with 12b-1 payments and about the SEC's ongoing review of Rule 12b-1. Middle class Americans need the continuing service, guidance and support that are provided by independent financial advisors like myself in order to achieve their personal financial goals. 12b-1 fees provide a tax efficient means to support the advisors who continue to provide advice long after commissions stop coming in. 12b-1 fees have many good things about them. Among them are:
.Expanding Investor Choice - The multiple share classes made possible by Rule 12b-1 give investors choices by providing them with options in how they pay their financial advisor. The flexibility offered by Rule 12b-1 allows financial advisors to tailor a portfolio to their client's specific needs.
.Supporting Financial Education - Mutual funds send their investors monthly statements, confirmations, prospectuses, annual reports, and other materials. Financial advisors serve the vital role of educators by helping investors to make sense of these essential materials. 12b-1 fees are the compensation financial advisors receive for these efforts.
.Managing Client Expectations - We all know the common mistakes investors make; buying high and selling low, chasing past performance and harboring unrealistic expectations. 12b-1 fees provide financial advisors with compensation to work with their clients on a continuing basis to manage the client's expectations and protect the clients from falling into these common investor traps.
.Insuring Small Accounts Receive Service - Investment advisory services are simply out of the reach of many small account holders. Most highly competent advisors won't work with clients who have accounts of less than $500,000. 12b-1 fees provide at least a small compensation to advisors willing to work with small investors to help them achieve their financial goals. I have always worked with middle class clients and now they're not all middle class. To a person, they have said that they could not have achieved their amazing financial success without competent financial advice.
In conclusion, I think it is reasonable to review the investor benefits of 12b-1 fees. I also feel it is important to provide clear disclosure of those fees to investors. But most of all I know that the repeal of 12b-1 has the potential to cause great harm to thousands of individual investors who need the support and service of a trained financial advisor because well trained advisors will no longer be compensated to work with them. As a result, I recommend the SEC allow Rule 12b-1 to continue to support my 23+ years of providing needed financial services to middle class American investors.
Sincerely,
Suzanne Seay
CFP