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WASHINGTON – The SEC is receiving more feedback from the credit union industry on its proposal that would add more disclosures for investors at the point of sale. The SEC has proposed requiring broker-dealers to provide their customers with information regarding the costs and conflicts of interest that arise from the distribution of mutual fund shares, 529 college savings plan interests, and variable insurance products at the point of sale. Since first proposing rule rules 15c2-2 and 15c2-3 in January, 2004, the SEC has received more than 1,000 comment letters on the matter. David Bogle, a branch manager at $651 million Tulsa Teachers Credit Union, is among the latest to voice concern that the proposal’s would be expensive and compliance costs would eventually be passed on to investors. “I would urge the SEC to refocus its efforts on incorporating important fee information into the prospectus which could be more user friendly,” Bogle wrote in an April 6 letter to the SEC. “This would solve the problem without the burden of additional regulations as discussed in the proposal point of sale and confirmation disclosures.Bogle also feels the “current approved sales literature and prospectus which discusses fees and sales charges give proper disclosure to clients.” “Most clients feel the guidance they receive from me at the time the account is established and the ongoing assistance is the most important aspect of our relationship,” he told the SEC. Some in the credit union industry are questioning whether having more disclosures will help investors with their long-term planning. John Shartrand, chief investment officer for CAP COM Financial Services, LLC, the investment subsidiary of $410 million Capital Communications FCU, expressed his frustration in an April 4 e-mail to the SEC. “When I see legislation focusing solely on disclosure of fees `to help the Individual Investor’ I get a little frustrated,” Shartrand wrote. “The success of an Individual Investor depends on professional guidance and education NOT Fee disclosure, yet that has been the focus.” Shartrand said the CUSO has access to more than 17,411 mutual funds and variable annuity sub accounts and 1,800 “active” clients. He questioned whether investors would be more inclined to read more disclosure information. “It has taken years to get the individual to get used to the prospectus. Re-inventing how you disclose things will not help the individual,” Shartrand said. In his 20-plus years of experience, Shartrand said he has seen “more people fail in real life based on making wrong decision(s) then I have seen people succeed because they saved twenty basis points on an investment they picked.” By far, the SEC has been deluged with disapproval from Linsco/Private Ledger, which provides third-party networking arrangements to more than 400 credit unions and banks. At least 20 representatives have written to the Commission expressing their concerns with the point of sale disclosure proposal. W. Robert Wilson, a Lancaster, Pa.-based LPL advisor, said the proposal’s “unintended consequence of substantially limiting the broad universe of mutual funds and variable annuities” would affect approximately 200 of his clients while William G. Gray, III, a Yucaipa, Calif.-based LPL investment representative said the proposal would impact 400 of his clients. Janetta Graber, a Wichita, Kan.-based LPL registered principal relayed how some of her clients are overwhelmed with the number of disclosures they currently receive. “It reached a point where the clients say “ENOUGH ALREADY!,” Graber wrote. “Probably at least once a day, one of my clients say to me `tell them to quit sending all this stuff to me.’ I tell them the SEC requires it to be sent.” The SEC “surely has issues of higher priority than another form that most investors won’t read or understand,” wrote Christen Sanchez, a Jacksonville, Fla.-based LPL certified financial planner. “I might also add that making it more complicated for clients to make investment choices DISCOURAGES invest(ing) rather than help them make better decisions,” Sanchez wrote. “At a time when most Americans are not saving enough, making it even more confusing seems to be the wrong direction.” One LPL financial consultant traces the problem back to the “excesses of the late `90s and corporate fraud in 2000-2002.” Keith Tyner, a Fishers, Ind.-based LPL rep said “honest” advisors will ultimately catch the heat. “The ongoing compliance requirements that have been added over the last two to three years will have very little effect in deterring the dishonest financial advisors, but will clearly change the way honest representatives do business,” Tyner wrote. The American Bankers Association has even weighed in on the proposal. Christopher Peterson, based in Watertown, S.D. wrote if banks are required to uphold a “myriad of regulations” the mutual fund industry should be held accountable too. “In the banking industry, we strive to maintain a squeaky clean image and have myriads of regulations that enforce it,” Peterson said. “The mutual fund industry requires the same – after all it’s not our money.” Consumer groups have also voiced their concerns, some of which are mixed. In a joint April 6 letter, the Consumer Federation of America, Consumers Union and Fund Democracy, Inc. applauded the SEC’s strides towards “meaningful price transparency” but worried that the Commission’s steps “have undermined their ability to serve their intended purpose.” “With comparative information removed, the documents no longer give investors any sense of the extent of the conflict of interest at work or how the costs compare to those of other funds,” the groups wrote. Specifically, with 12b-1 fees, grouping them with annual operating expenses “fail to make a clear distinction between what the investor pays for the services of the broker in selling the fund and the costs associated with operating the fund.” Still, the groups “appreciate that requiring brokers to provide their customers with basic information about funds at the point of sale is by itself a watershed event in the history of the regulation of mutual funds.” -

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