Date: October 27, 2010
Subject: ACT NOW: Send Comments to SEC on 12b-1 Proposal

All securities-licensed NAIFA members must read this GovAlert!
Please Send Comments to SEC by November 5!

Background: The SEC recently issued a proposed rule that would reform SEC Rule 12b-1 and the fees that are authorized under that rule. The proposed rule would maintain (but rename as new rule 12b-2) the 25 basis points fee that is currently used to compensate registered reps for providing important ongoing services to their clients. The proposal would also attempt to improve the “transparency” of distribution and marketing fees that are disclosed to consumers by, among other things, abandoning the use of the term “12b-1 fees” and replacing it with the terms “marketing and service fees” and “ongoing sales charge”. NAIFA supports these parts of the proposal.

However, NAIFA has significant concerns about a part of the proposed rule that the SEC claims would “encourage retail price competition.” This would be accomplished by allowing mutual funds to establish new share classes that would be issued at net asset value, without fund managers setting any sales commissions or sales charges. Instead, individual broker-dealers would be able to set their own commission and sales charge amounts that would be based on the level of services they provide, and these fees would be charged directly to the investor.

Why NAIFA is Concerned: The SEC has indicated that allowing b/ds to compete based on sales charges and the services they provide will create a level playing field and lead to reduced costs. NAIFA, however, is concerned that allowing broker-dealers to compete based on the commissions they charge and the services they provide will lead to a “race to the bottom” causing middle market investors to be overly focused on price and ending up without access to valuable advice and ongoing account services. As b/ds slash their fees in an effort to gain market share, it will no longer be financially feasible for registered reps to continue to provide the level of individualized advice and services currently offered. Investors who can afford assets-under-management arrangements or higher cost/higher service classes of shares will continue to receive personalized investment advice, while middle market investors will be deprived of the guidance they need and deserve.

What You Should Do: Please send a comment letter to the SEC today and tell the SEC you oppose allowing broker-dealers to set their own commissions. You can do this by:

• Clicking here to visit the SEC’s website and submit your comments.
• Send your comments to the SEC either by e mail to rule-comments@sec.gov or by mailing written comments to Elizabeth M. Murphy, Secretary, Securities and Exchange Commission, 100 F Street, NW, Washington, DC 20549-1090.

Please Note: All comment letters must reference “File Number S7-15-10” in the subject line and must be submitted by November 5, 2010.

Sample Talking Points: Using your own words always has a greater impact on regulators than submitting the same form letter as many others.  The following talking points can be used as the basis for your comment letter or text of your e-mail:

• I have been a licensed insurance professional and registered representative for over __ years.
• I support new SEC rule 12b-2, which would continue the 25 basis points fee that is used to ensure investors receive ongoing service and advice, and the SEC’s proposed use of the terms “marketing and service fees” and “ongoing sales charge” in place of “12b-1 fees” to improve transparency in disclosure documents.
• However, I strongly object to the SEC permitting mutual funds to issue a new class of shares at net asset value that would allow broker-dealers to set their own sales charge and commission amount.
• Competition based on price and cost sounds good but will come at the expense of needed advice andservice for middle market investors.
• 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.
•  As a result, only upper-income investors who can afford assets-under-management arrangements or higher cost/higher service classes of shares will continue to receive personalized investment advice.
• Investors with smaller fund account balances will be forced to self-direct their accounts if they wish to continue to own mutual funds because their advisors will no longer be able to afford to spend the time to guide and advise them, leaving discount brokerage fund platforms as the only affordable option for middle and lower market investors.
• The people the SEC is trying to protect the most--middle and lower market investors—will be hurt the most, since they will be deprived of the guidance and service they need and deserve.

Reminder—the comment period closes November 5, 2010. PLEASE submit your comments by no later than Friday, November 5, 2010

Technical Assistance? If you have technical questions about submitting your comments please contact Matthew Laptew at 703-770-9154 or mlaptew@naifa.org . If you have questions about the SEC proposal, please contact Gary Sanders at 703-770-8192 or gsanders@naifa.org.

Thank you in advance for your help on this issue!