Firms deserve kudos for making women CEOs

The June 11 Monday Morning column, “Wall Street’s new version of the gold watch,” suggests that female executives who break through the glass ceiling are rewarded by being “retired” or pushed out.
But a crucial point has been missed: What’s remarkable is that [Deborah D.] McWhinney [of San Francisco-based Schwab Institutional] and [M. Shawn] Dreffein [of Santa Monica, Calif-based] National Planning Corp. both became CEO of their organizations (and Ellyn McColgan is CEO of the part of Fidelity [Investments of Boston] that includes adviser services).
What happened to these highly competent and motivated women is not much different than what happens to men: Some guys get retired or pushed out.
It’s not about women; it’s about life as a senior executive.
And each of the companies should be applauded for promoting the women in the first place.
Milton Stern
Bridgewater Advisors Inc.
New York

Eliminating 12(b)-1 fees would harm little guy
In your May 14 article “Cox, Schapiro tackle disclosure at ICI Meeting,” I found of particular note the statement by Securities and Exchange Commission Chairman Christopher Cox concerning 12(b)-1 fees’ needing either “reform or repeal” presenting some serious consequences for the small investor.
Maybe a review of the history of the 12(b)-1 fee is indicated. We hear that the 12(b)-1 fees were to be used for marketing expenses, but from my perspective, I remember a time when “churning” was the No. 1 compliance problem for both the fund companies and the regulators.
In those days, mutual funds carried an 8.5% sales load as the rule rather than the exception, and once a sale was made, the broker was off to his next sale.
Service after the sale was limited and mostly up to the fund company. Customers were left to fend for themselves. The load fund industry was cast in the light of the polyester-suited, fast-talking shyster of yesteryear.
At that time, load funds were experiencing the pressure from the no-load competition and losing customers right and left. So they developed what they thought was an excellent way to stop churning and retain assets on deposit.
Here’s the story told to every broker at the time: “Listen, we are reducing our sales load to 5.5%, from 8.5%, which is going to be good for you because we will be more competitive against the no-load funds, and we have a new fee called a 12(b)-1 fee, of [0.25%], that can be used to pay you to service your clients.
“Imagine, you can use this trail commission to build assets on deposit so that on some magical day in the future, when you need to retire, you don’t have to keep knocking on doors and dialing for dollars to make a living. Now, doesn’t that sound just great?”
For those of us who were brokers at the time, it did sound great, but it took some getting used to. We experienced a reduction in compensation of more than 30%, but we told ourselves that the continuing 12(b)-1 fee would make up the difference.
Many who were brokers in the 1970s and ’80s are seasoned planners today. Commission-based compensation is becoming less of our total income as we have embraced the fiduciary standards of financial planning and created our own fee-based independent registered investment adviser firms.
Therein lies the problem. As we all transition our practices, the smaller clients become more of a time and financial burden. I and likely many of my fellow certified financial planner practitioners feel an obligation to continue to serve these smaller clients. After all, didn’t they help us to build our practices over the years through their continued trust and confidence, and of course those 12(b)-1 fees that actually did work pretty well to eliminate churning and retain assets on deposit?
So why do we keep servicing them year after year even though their percentage of income to us is less and less?
Because while they individually may not be able to pay our current fees for advice or service, collectively, their 12(b)-1 fees do compensate us to continue to provide for their needs as they arise.
Quite frankly, if the SEC repeals the 12(b)-1 fee, we will have no choice but to refer those clients back to the fund company or the broker-dealer.
No longer could we as a business owners afford to answer questions about capital gains treatment and cost basis, provide copies of trade confirmations from 20 years ago or explain the difference between regular and qualified dividends.
So Mr. Cox may very well be correct in his statement that 12(b)-1 fees are not being used as originally intended. But time will tell how the average mutual fund purchaser will respond when they hear me and thousands of other advisers say, “We are sorry we can no longer service you or answer your questions concerning your account, due to the SEC’s removing our compensation to do so. Please call your fund company or broker-dealer directly to answer any questions you may have.”
Does anyone else sense the townsfolk of America gathering with pitchforks and rope?
Richard L. Cox Sr., CFP
Cox Wealth Management LLC
Chattanooga, Tenn.

Related Topics: Letters To The Editor