Washington (Feb. 18, 2004) -- The Financial Planning Association lent its support to a Securities and Exchange Commission proposal that would require enhanced disclosure regarding mutual fund breakpoint discounts, but said the plan may not go far enough.

“This enhanced disclosure will assist financial planners and investors in understanding the breakpoint opportunities available to them, and will have an overall beneficial effect on consumer protection,” Neil A. Simon, FPA director of government relations, wrote in a Feb. 13 e-mail to SEC secretary Jonathan G. Katz.

In particular, Simon said the enhanced disclosure requirements would assist FPA members in complying with Rule 704 of the CFP Code of Ethics and Professional Responsibility, which requires CFP practitioners to undertake a “reasonable investigation regarding the financial products recommended to clients,” and would assist planners in evaluating fund options for their clients.

However, Simon said the additional disclosures “are likely to be only marginally helpful to consumers.” “Anecdotal evidence from financial planners who must carefully evaluate their clients’ financial sophistication during the financial planning process suggests that the vast majority of shareholders fail to read fund prospectuses,” the e-mail continued. “Absent the professional services offered by financial planners and/or refinement of fund prospectuses, adding to an investor’s reading burden may be of little additional value.”

The SEC has proposed adopting a July 2003 recommendation by the Joint NASD/Industry Task Force on Breakpoints that would, among other things, require funds to describe in their prospectuses any arrangements that result in breakpoints in sales loads, including a summary of eligibility requirements. In addition, the SEC would require funds to describe the methods used to value accounts for purposes of determining whether an investor has met sales load breakpoints. The SEC also proposed requiring funds to state in their prospectuses whether they make information about their sales loads and breakpoints available through their Web sites.

-- WebCPA staff

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