October 26, 2007
I am writing to express my concerns about the SEC's ongoing review of Rule 12b-1.
I have been in the securities industry for the past 25 years. Over that time I have provided service and I believe value to my clients. I have seen standard commissions reduced from 8.5% to 5.75%. At the time of this reduction was given to understand that there would be a .25% annual fee of the clients assets payable for my continuing to provide services, which I have done for all my clients. If the 12b-1 fees were to be eliminated, they would be replaced by investment advisory fees. My clients are small and would not be able to afford these fees. Up until the present, they have been able to pick up the phone and call me for any of their needs or questions. I have given the same service to small or large accounts. I have been able to "hold their hands" during difficult times in the market and help them with their anxieties, problems and any questions they may have had.
If the 12b-1 fees were to be eliminated, I would no longer afford to provide these ongoing services.
I do believe that this is definitely going to have a negative effect on all the middle income clients who would have to receive their advice elsewhere - possibly from the news media and financial magazines.
Middle class Americans need the continuing service, guidance and support that are provided by independent financial advisors to achieve their stated investment goals. 12b-1 fees provide a tax efficient means to support the continuing service which these clients require for successful investing. The benefits of 12b-1 fees are numerous and include:
.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 Literacy - 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 manage their client's expectations and protect them from falling into this common investor traps.
.Insuring Small Accounts Receive Service - Investment advisory services are simply out of the reach of many small account holders. Financial advisors must have another means of being fairly compensated for servicing these accounts. 12b-1 fees provide the mechanism to insure small investors receive the support and service they need to achieve their financial goals.
.Subsidizing Additional Services - Independent financial advisors offer their mutual fund clients a variety of additional services including: consolidated account statements, periodic portfolio review meetings, quarterly newsletters, cost basis research, preparation of tax returns, and consulting on other financial decisions. These important services are made possible by the subsidy 12b-1 fees provide.
In conclusion, while it is reasonable to review the investor benefits of 12b-1 fees, it is obvious 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. As a result, I urge the SEC to allow Rule 12b-1 to continue to support my efforts to provide needed financial services to middle class American investors pursuing their financial goals.
Sincerely,
Emilia Kato
OSJ
Girard Securities