March 31, 2000

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

Re: File No. S7-6-00

Dear Mr. Katz:

MML Investors Services Inc. ("MMLISI") appreciates this opportunity to comment on proposed Regulation S-P (the "Proposal"), privacy rules published under section 504 of the Gramm-Leach-Bliley Act (the "Act"), contained in Release No. 34-42484 (the "Release").

We have concerns with four aspects of the Proposal: (1) the classification of mutual fund and variable contract purchasers who effect their purchases through introducing broker-dealers as "customers" of the broker-dealer for purposes of the annual notice requirement; (2) the timing of the annual notice requirement; (3) the timing of the initial notice to customers; and (4) the effective date of the Proposal.

I. Mutual fund purchasers as "customers." Many broker-dealers, such as MMLISI, conduct business in such a way that they generally do not have ongoing relationships with customers. For example, our registered representatives sell primarily mutual funds and variable insurance products. Virtually all transactions subsequent to the initial purchase occur directly between the client and the transfer agent without the involvement of MMLISI or its registered representatives.

A client desiring to purchase additional shares of a mutual fund or place subsequent deposits in a variable annuity simply detaches a coupon from the confirmation statement he/she received from the transfer agent and sends the money directly to the transfer agent. Similarly, since the mutual fund shares or variable product are registered directly in the customer's name, the client typically calls the fund's transfer agent or the insurance company directly to get assistance with service issues or to redeem shares. We are notified about these transactions, as the dealer of record, only after they have occurred.

Under this method of conducting business, the broker-dealer generally has little, if any, contact with the purchaser after the initial purchase. We do not believe that persons with such an attenuated relationship with the broker-dealer should be classified as customers of the broker-dealer for purposes of the annual notice requirement specified in § 248.5.¹

Unfortunately, the Proposal is unclear as to whether such persons are "customers" of the broker-dealer under these circumstances. On one hand, § 248.3(k)(1) specifies that a customer relationship "means a continuing relationship". Moreover, the Release elaborates on this language by noting that the Commission has "interpreted the Act as requiring more than isolated transactions between a financial institution and a consumer to establish a customer relationship, unless it is reasonable to expect further contact about that transaction between the institution and consumer afterwards." Release, p.12. Such language is quite favorable to concluding that consumers such as those found at broker-dealers like MMLISI are outside of the scope of a "customer relationship".

On the other hand, various examples in the Proposal undermine this solidity of this conclusion. The examples specify that a continuing relationship exists if a person has a brokerage account with a firm, or if the broker-dealer "regularly" effects securities transactions for the customer, even if the broker-dealer does not hold the customer's assets, or if a person buys mutual funds from a broker-dealer. Release, pp. 12-13. Moreover, the relief afforded by § 248.3(k)(2)(v) is inapplicable because it is premised on a person not establishing an account and the broker-dealer acting solely "as an accommodation." When applied to MMLISI's method of doing business these examples create uncertainty as to whether mutual fund/variable product purchasers have a customer relationship with us. Clarification of this issue would be extremely helpful.

The importance of clarifying this issue is vividly demonstrated by considering the costs of compliance with the Proposal. The costs of preparing and distributing the annual notice will be tremendous for firms that conduct their mutual fund and variable product businesses like MMLISI. The Commission incorrectly assumes that all broker-dealers regularly send out statements and communications to their customers, and then it bases its cost estimates on that assumption.² The resulting calculations thus grossly underestimate the burdens and costs that MMLISI-type broker-dealers will incur.

For example, our firm has approximately 2,000,000 accounts. Since we are not currently required to, and do not, make routine mailings to the owners of these accounts, sending each account owner an annual privacy notice would require us to undertake a special mailing. We estimate that it would cost us approximately 35 cents per account simply for paper, envelope and postage. Adding a conservative labor/mechanical process cost of 15 cents per item produces a per item cost of approximately 50 cents. We would thus incur an annual cost of $1,000,000 to send out these notices to our account owners, most of whom have not had a direct transaction with us in years.

The Commission estimates that the costs of this requirement for the entire securities industry would be only $2.6 million. This estimate is completely inaccurate. Our firm alone would spend approximately $1,000,000, and we have no reason to believe that other similarly-situated firms could satisfy this obligation more efficiently. We respectfully request that an example be added to the Proposal specifically confirming that individuals purchasing mutual funds or variable products through a broker-dealer which then has little, if any, ongoing contact with that purchaser, are not customers of the broker-dealer for purposes of the annual notice requirement, even if the mutual funds or variable contracts are registered in the purchasers' names.

II. The timing of the annual notice requirement. Although we strongly believe that it is not necessary or appropriate to apply the annual notice requirement to mutual fund/variable contract purchasers who do not have regular contact with the broker-dealer who effected their initial purchase, should the Commission disagree with this analysis, we note here a concern with the timing of the annual notice requirement set forth in the Proposal. Section 503(a) of the Act requires that privacy notices be provided at the time a customer relationship is established and no less frequently than annually during the continuation of the relationship. The Proposal appears to inadvertently expand on this requirement by indicating that a notice must be sent to customers at least once during any 12 month period during which the relationship exists. We believe that the requirement of providing notice "once every 12 month period" goes beyond the scope of the statute and will be operationally cumbersome.

Because new customers will be receiving initial disclosures throughout the year, the Proposal will require broker-dealers to keep track of precisely when the customer first received the initial notice and then send the customer an annual notice before the customer's anniversary date of the delivery of the notice. This means that firms will have to keep special records devoted solely to the provision of annual notices to customers throughout the year.

We believe that a better approach would be to allow broker-dealers and investment advisers to have the flexibility to send customers annual notices at least once during each calendar year, beginning immediately after the customer establishes a relationship with the firm. For example, a broker-dealer or investment adviser would be required to give an initial notice to a customer at the time the relationship is established. In subsequent calendar years, the firm would be required to send the annual notice to every customer before December 31^st. This approach would result in considerable savings for firms because it would enable them to send notices once each calendar year to all customers in one mailing. Not only do such savings ultimately accrue to the benefit of the firm's customers, but this approach is also consistent with the Act. Under our suggested approach, each customer would receive a notice annually.

III. The timing of the initial notice to customers. We strongly oppose the requirement contained in § 248.4(a)(1) that initial privacy notices be provided prior to the time the financial institution establishes a customer relationship. By contrast, Section 503 of the Act provides that an initial disclosure must be made at the time of establishing a customer relationship with a consumer. The Release notes that this "approach is intended to strike a balance between: (i) ensuring that consumers will receive privacy notices at a meaningful point when establishing a customer relationship; and (ii) minimizing unnecessary burdens on financial institutions that may result if a financial institution is required to provide a consumer with a series of notices at different times in a transaction. We believe that the "prior to" standard that the Commission has proposed will be difficult to meet. In addition to being contrary to the language of the Act, it will require broker-dealers and investment advisers to first determine when the customer relationship is established, and then just before that time, provide the required notice to the customer. This approach is inconsistent with normal business. It will impose burdens on broker-dealers and investment advisers which are not needed to ensure that the consumer will receive privacy notices at a meaningful time.

We strongly urge the Commission to amend § 248.4(a)(1) to permit the initial notice to be provided "at or before" the time the customer relationship is established. This would resolve the conflict between the language of the Act and the Proposal, and would enable notices to be provided at a meaningful time without unnecessarily burdening broker-dealers and investment advisers. It would also allow for the flexibility necessary to accommodate a variety of constantly changing business practices.

IV. The effective date of the Proposal. The Commission has proposed an effective date of November 13, 2000, and has indicated that initial notices would have to be sent no later than 30 days later to all customers as of the effective date. This timeline will be almost impossible for firms such as MMLISI to meet. In over 18 years of business, MMLISI has never been required to make, and thus has never made, a "mass" mailing to all of its account owners. We have no practical experience in addressing the numerous technological and logistical aspects of such an undertaking. Although we hope that the Commission will recognize the inappropriateness of requiring firms like MMLISI to send annual statements to customers with whom it does not have regular contact, we suggest that broker-dealers and investment advisers be given at least one full calendar year after the effective date to send initial notices to its existing customers. This would enable such firms to "piggyback" such notices on other routine statements or correspondence that they or their product suppliers may be sending to customers, thereby minimizing the costs of this undertaking.

c:	Office of Management and Budget Attn: Desk Officer for the Securities and Exchange Commission Office of Information and Regulatory Affairs Washington, DC 20503