From the plan's viewpoint, competition to provide favorable in

vestment opportunities to the plan would be diminished, in

some cases significantly.

Failure to extend the Temporary Ex

emption would also require many plans to purchase money management and brokerage at substantially increased costs. Over the years, many securities firms have developed relationships with their client plans-especially Keogh Plans and Individual Retirement Accounts--whereby, for compensation which largely or entirely consists of brokerage commissions, the firm provides not only brokerage but also individualized investment management services. While no precise statistics are currently available, we do know that a very large number of plans do business on this basis. For many such plans, this constitutes their only means of obtaining personalized investment management services at a price they reasonably can afford.

Failure to extend the Temporary Exemption would disrupt these long-standing relationships and would require these many plans to pay separately for investment management services, while still incurring brokerage expenses. At the very least, most of these plans would be forced to spend more money to obtain the same services they now receive. Indeed, many such plans would be unable to afford individualized professional investment management and, instead, would be required to have their assets pooled in vehicles which may not recognize the special character or objectives of the particular plan,

More

in order to receive professional management services.
over, we are certain that a considerable number of smaller
plans simply cannot afford a separate management fee of
any amount. Elimination of the Temporary Exemption will
require these plans either to make do without professional
investment management or to go out of existence.

From the

perspective of their participants and beneficiaries, and particularly in light of the policies underlying the Act, this surely amounts to Hobson's Choice.

It seems inescapable, therefore, that a considerable number of plans cannot, at this time, discontinue their combined brokerage-money management relationships without considererable economic detriment--or worse--to themselves and, ultimately, to their participants and beneficiaries. As the SEC recently

noted:

24/

There are likely to be circumstances
in which those authorized to transact
business for discretionary accounts may
find it more costly, or otherwise not in
the best interests of the account, to pay
separately for money management and bro-
kerage. In some cases, the payment of
transaction-related fees as an offset to,
or perhaps even a substitute for, manage-
ment fees computed solely on an asset-
related basis may better suit the invest-
ment needs of those accounts. Those ac-
counts are in the best position to judge
whether the arrangements made with their
account managers are suitable to their
investment needs and whether the per-

formance of those account managers measures
up to their needs and expectations. 24/

Securities Exchange Act Release No. 14563, at 32-33 (March

14, 1978) (footnote omitted).

For all the foregoing reasons, SIA believes that

if the Agencies failed to extend the Temporary Exemption, they would quite probably condemn a considerable number of plans to unavoidably adverse consequences to themselves and, ultimately, to their participants and beneficiaries. In our view, this probability becomes particularly compelling in light of the apparent lack of any countervailing benefit which plans would derive from elimination of the Temporary Exemption. The Agencies have not alleged that the Temporary Exemption has in any way disserved the best interests of plans or their participants and beneficiaries. Furthermore, the

Agencies already have before them SIA's class application for a prohibited transaction exemption 25/ which would succeed the Temporary Exemption and which would more closely "conform the treatment of accounts covered under ERISA to the SEC's requirements." 26/ In this context, we cannot see how the dislocations precipitated by elimination of the Temporary Exemption prior to disposition of the issues raised by SIA's application will ultimately benefit those persons for whose benefit the Act was enacted.

25/ Exemption Application D-1026 (April 12, 1978). See also note 20 supra.

26/

S. Rep. No. 95-763, 95th Cong., 2d Sess. 6 (1978); see text accompanying notes 14-16 supra.

SIA appreciates this opportunity to convey its

views to the Agencies. We are prepared, at the convenience of the Agencies, to discuss further their proposal to extend

the Temporary Exemption and our comments regarding that proposal.

CC:

Hon. T.R. Kern

Sincerely,

Edward B

Edward I. O'Brien

President

Ian D. Lanoff, Esq.
Joel Goldberg, Esq.
Burton Leibert, Esq.

Daniel J. Shapiro, Esq.

Fred T. Ochs, Esq.
John Burke, Esq.

Allen D. Lebowitz, Esq.

Ivan Strasfeld, Esq.

EXHIBIT E

STATEMENT OF THE SECURITIES INDUSTRY ASSOCIATION
BEFORE THE DEPARTMENT OF LABOR

AND THE INTERNAL REVENUE SERVICE
HEARINGS REGARDING THE EXTENSION OF

AN EXEMPTION FOR CERTAIN BROKERAGE TRANSACTIONS

June 12, 1978

I am

We

Mr. Sieff: Good morning. My name is John A. Sieff. First Vice President and Director of Smith Barney, Harris Upham & Co., Inc. (New York) and Chairman of SIA's Money Management Committee. I shall present the first part of our prepared statement. Presenting the second part will be Daniel S. Kampel, Partner of L.F. Rothschild, Unterberg, Towbin (New York) and Chairman of SIA's ERISA Committee. are accompanied today by: L.C. Petersen, President and Chief Operating Officer of Kirkpatrick, Pettis, Smith, Polian Inc. (Omaha) and Chairman of the Regional Firms Subcommittee of the ERISA Committee; Stephen G. Gaber, General Partner of Mesirow & Company (Chicago); Richard . Scribner, SIA Senior Vice President and General Counsel; and Edmund P. Bergan, Jr., SIA Assistant General Counsel. We have assembled this relatively large group in order to answer as best we can any questions you may have for us.

This is not the first time we have spoken to the Agencies' proposal to extend Paragraph I(a) of Prohibited Transaction Exemption 75-1, the "Temporary Exemption."

On May 31st, SIA