not used any of their authority, control, or responsibility to influence which broker is used to effect transactions for these accounts. Although Mesirow and its clients have adopted this policy pending adoption of the proposed extension, they do not feel that it is economically or practically feasible to continue operating in this manner for any significant period of time. Mesirow furnishes to these plans, or their trustees, the same research materials and investment advice made available to its other retail customers, including individualized investment advice on a regular basis. These 106 plans each possess assets which range from $5,000 to $500,000. Each of them pays brokerage commissions, but none of these plans pays an advisory fee. For purposes of its survey Mesirow divided these 106 plans into four categories: a "First Category" of 55 plans each possessing assets between $5,000 and $50,000; a "Second Category" of 21 plans each possessing assets between $50,000 and $100,000; a "Third Category" of 20 plans each with assets between $100,000 and $250,000, and a "Fourth Category" of plans each with assets between $250,000 and $500,000. Within each of these four categories, Delphi performed two distinct statistical operations. First, the amount which each category of plans paid to Mesirow in brokerage commissions during calendar year 1977 was calculated as a percentage of plan assets. Second, based upon Delphi's fee structures, and its knowledge of generally 30-779 - 78 - 80 prevailing advisory rates, Mesirow estimated what percentage of assets each category of plans would pay if, absent the Temporary Exemption, all of these plans continued to have their transactions executed by Mesirow but engaged another securities firm, or other investment counsellor, to provide investment services. Mesirow's calculations would also cover those sample plans which elected to receive investment management services from Delphi and to effect transactions through an unaffiliated broker. The results are revealing. During 1977, plans in the First Category paid an amount equivalent to .85% of their assets in brokerage commissions. The corresponding figures for the Second, Third and Fourth Categories are, respectively, .62%, .57% and .51%. Assuming expiration of the Temporary Exemption, plans in the First Category would have very few alternatives. Most investment advisers are unwilling to engage plans of so small a size on an individualized basis. However, a few brokerdealers are known to offer such plans individualized investment advice for approximately 3% of assets, inclusive of brokerage commissions. Plans in the Second Category could obtain individualized investment advice for between 14% and 3% of assets. In all likelihood, these precentages would be inclusive of brokerage commissions for all but the largest plans in this category. Plans in the Third Category would obtain their present stream of investment advice for a fee of between 3/4% and 14% of assets, exclusive of brokerage commissions. Finally, plans in the Fourth Category could purchase their investment advice for 3/4% of assets, exclusive of commissions. Mr. Gaber is prepared to answer your questions regarding the derivation and interpretation of these statistics. However, certain important conclusions are apparent even to the more casual observer. The statistics fairly indicate that withdrawal of the Agencies' proposal would require these 106 pension plans of small and moderate size to pay at least two or three times as much money to receive the same brokerage services and the same stream of investment advice as they presently consider necessary to their sound management. Second, these 106 plans fairly represent literally thousands of other similarly situated plans which the Temporary Exemption permits to purchase brokerage and investment advice or money management without the payment of a separate advisory fee. Third, we are certain that elimination of the Temporary Exemption would require some of these 106 plans, and many more similarly situated plans, to either make do without professional investment advice or management, or to go out of existence. As we stated in our letter of May 31st, from the perspective of their many participants and beneficiaries, and in terms of the policies underlying the Act, this is Hobson's Choice. This would be a fearful price to pay even if it purchased protection from some demonstrated pattern of abuse. Yet there is no factual evidence that the Temporary Exemption has in any way operated to disserve the interests of plans. Nothing has occurred which would cast doubt upon the Section 408 (a) findings made in October 1975. There is nothing in the record to deter the Agencies from fulfilling the expectation of Congress that they will renew those findings for nine more months. We all thank you for this opportunity to appear and to present our views at this hearing. We would be happy to answer your questions. It is my understanding that your Pension Task Force I strongly support an amendment to broaden the Although I will be unable to attend your hearings on Thank you for your attention to this important matter. |