NAIFA submitted official comments to the SEC on the Commission’s proposal to replace rule 12b-1 of the Investment Company Act. NAIFA applauded the SEC’s efforts to protect investors and agreed with many of the points in the proposed rule, such as retaining a 0.25% annual marketing and service fee on mutual funds to ensure agents are able to provide ongoing service and advice to clients after a sale.
However, NAIFA's comments express two areas of concern in the SEC proposal. First, as we explained in a previous blog post, NAIFA is worried that a provision to allow new classes of funds under which brokers would set their own commissions would create a “race to the bottom,” with some broker-dealers slashing their commissions to the bare minimum to attract customers. This, NAIFA explained in its comments, “will cause lower and middle market investors to be overly focused on price, and to not recognize the value and advantages personalized service affords them. In other words, in effectuating its desire to level the playing field and lower costs, the SEC’s Proposal would eradicate the market for personalized investment advice for lower and middle market investors.”
Second, NAIFA is concerned that the SEC’s proposal to change fee disclosure rules will give investors an inaccurate picture of the fees and expenses associated with mutual funds and could mislead the public into believing broker-dealers are receiving more fees than they actually are.
NAIFA Members Submit Comments
NAIFA members sent the SEC approximately 750 letters on the rule proposal (approximately 45% of all the comments). Some highlights are below. All of the comments are available on the SEC website.
- Bruce E. Siennick, CFS, CLTC, writes: "Competition based on price alone sounds good on paper, but it will come at the expense of needed advice and service. I work mainly with the middle market, they are underserved and relationship building is extremely important here."
- Robert J. Hollander, LUTCF, writes: "I believe this proposed rule change would eventually take us back to the early days of the securities business when the business model was based on transactions. This change would represent a shift away from the current independent registered rep business model based on long term relationships."
- Anne Marie C. Albertine, MBA, CFP, writes: "As broker-dealers lower their sales charges and fees in an effort to gain market share, it will no longer be financially feasible for registered representatives to continue to provide the level of individualized advice and ongoing service that we currently provide to our middle and lower market clients."
- Thomas R Clark, CLU, ChFC, writes: "Price cutting is the domain of the weaker competitor, whether that weakness is in knowledge, service, or comprehensive guidance. And, it tends to focus the buyer's attention on price only, to the exclusion of all other factors that will prove to be worthwhile over the lifetime of the client's relationship with the advisor."