May 5, 1992
TO: INVESTMENT ADVISERS COMMITTEE NO. 20-92
SEC RULES COMMITTEE NO. 27-92
RE: CHAIRMAN DINGELL'S LETTER TO THE SEC ABOUT WRAP FEE PRODUCTS
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Congressman John Dingell, Chairman of the House Committee
on Energy and Commerce, recently sent a letter to SEC Chairman
Breeden that sets forth a number of concerns about wrap fee
products. A copy of the letter is attached.
These concerns include: whether the brokerage component is
appropriate for the particular type of account and customer;
whether the total fee is in line with the aggregate of fees
otherwise payable for individual component services; whether the
wrap fee involves a disguised referral or "kickback" arrangement;
whether wrap fee programs raise "mini-account" issues; what
standards should be applicable in determining whether best
execution was obtained; whether various service providers are
properly qualified and registered to provide that service; and
whether the disclosure to clients is adequate.
Prior to receiving this letter, Chairman Breeden had sent
the attached letter to Chairman Dingell responding to an earlier
inquiry about wrap fee accounts. In the letter, Chairman Breeden
states that the Divisions of Investment Management and Market
Regulation have been studying wrap fee accounts and have
inspected providers of wrap fee products. He further noted that
IM is considering amendments to Form ADV in part because of the
growing number of these products.
Chairman Dingell has requested assurances that the SEC is
aware of and focusing on the issues raised in his letter in
connection with the studies, inspections and consideration of
disclosure requirements that were described in Chairman Breeden's
letter. He expressed particular concern about the issue of
"kickbacks" because they "raise the specter of a revival of
illegal 'give-ups' that flourished under fixed commission rates."
We will keep you informed of developments.
Amy B.R. Lancellotta
Associate General Counsel
Attachments