Independent firms should handle all trade clearing

Besides raising the assets under management level to $100 million to move firms from state to federal regulation (“Advisers to SEC: Take our money, please,” Oct. 12), the Securities and Exchange Commission could effectively control fraud by having independent clearing firms handle all trade clearing, including the big wirehouses’, and have client reports come from the clearing firms, not the broker-dealers.

This could have effectively stopped the Madoff scam.

George N. Luciani

President and founder

Covered Bridge Tactical LLC

Capital Planning Advisory Group Inc.

Yardley, Pa.

American Funds article missed the mark

Our company has $600 million under management, and we use many different funds in our portfolios, but the base of most of our accounts is American Funds.

As someone who has used American Funds successfully with my clients for over 25 years, I thought your article in the Nov. 2 issue (“Is the bloom off the rose for American Funds?”) missed the mark.

Your basic premise that American Funds is experiencing liquidations is obviously factual, but all I can tell you is that our clients have been very pleased with how they have weathered the storms over the years.

Although American Funds might not be known for its fixed-income management, year-to-date through Sept. 30, the American High Income Trust Fund had a total return of 40.9%, versus 38.6% for the average high-yield fund tracked by Lipper Inc. American Funds’ Bond Fund of America had a total return of 13.6%, nearly matching that of the average corporate A fund, which gained 13.7%.

The article discussed American Funds’ domestic funds and used the Growth Fund of America as an example.

This fund is 73% invested in the United States, and the balance is invested internationally.

The people interviewed for the article referred to the fact that American Funds’ offerings charge a commission. Although it is true on A shares, the company also has F shares — where no initial commission is charged — and American Funds’ management fees are close to the lowest in the industry — load or no-load.

Many fee-only advisers use the company’s funds in their portfolios.

Finally, I find it strange that no reference was made to American Funds’ international funds, which is the area where they truly shine. The EuroPacific Fund, the company’s international large-cap-core growth fund, which the company has managed for the past 25 years, gained 34.5% during the nine-month period ended Sept. 30, versus the average fund in its category, which was up 26.3%.

Alexandra Armstrong

Chairman

Armstrong Fleming & Moore Inc.

Washington

American investors not Schapiro’s priority

Congratulations on your article “Amendment would give Finra expanded oversight over brokers’ RIAs,” which appeared on Investment News.com on Oct. 29.

I have been predicting this for more than two years.

SEC Chairman Mary Schapiro failed miserably as the head of the Financial Industry Regulatory Authority Inc. in policing the big firms. While she and her morons were chasing annuity salespeople in Florida, the Wall Street firms were fraudulently creating flawed instruments and selling them in the marketplace.

Instead of watching out for the American investor, Ms. Schapiro was pushing the merger of the old NASD with the New York Stock Exchange’s regulatory arm.

Three reasons for this were territory consolidation without lots of rewriting of rules and regulations, leveraging of the technology that is dominating exchanges and a huge payday for her as her salary in the new Finra went up by, I think, something like 52% when the merger was completed. This isn’t even counting Ms. Schapiro’s $20 million to $25 million defined-benefit pension plan.

She strong-armed the smaller broker-dealers during the merger town hall meetings into believing that $35,000 was the largest amount the new entity could pay them following completion of the merger. There is nothing I have discovered in the Internal Revenue Service regulations that supports that, and I suspect Ms. Schapiro used it as a scare tactic to push the merger down the small broker-dealers’ throats.

The only thing that she did at the old NASD was to make the lives of those small-broker-dealer officers absolutely miserable and to guarantee that they would be praying for early retirement packages. If my research is correct, during a four-year period, NASD passed nearly152 separate regulations, which added not one iota of value to the industry and in fact forced unnecessary “shotgun” marriages.

Ms. Schapiro’s bragging rights that she caught plenty of bad brokers and returned $1 billion in assets is laughable when Bernard Madoff stole billions from right under her nose.

In addition, the acquisition by Bank of America Corp. of Merrill Lynch & Co. Inc. put 12,000 reps even deeper into the institutional world. In less than five years, BofA will have its claws in those accounts, the reps will be salaried or held prisoner under golden-handcuff compensation, and any attempt to leave with clients will be dealt with severely and harshly by bringing the privacy laws and trade secret regulations down on them.

The net result is that we will have fewer independent reps, more salaried shills and more uniform, formula account advisers.

Proposed regulatory changes promise to add continued and unnecessary burdens to the smaller firms and will eventually force them out of business. The actual cost of compliance is nearly $150,000 a year per adviser now.

If the 4,000 broker-dealers that have some courage and intensity, and just pure fight, left in them would commit at least $100,000 over the next year to hire a lobbying firm and a law firm to sue both Finra and the SEC back to the Stone Age and make them accountable to investors and the broker community, I think we could have the profession back.

Daniel J. Taylor

Founder

Advisor Freedom

Charlotte, N.C.

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