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                    REMARKS BY ARTHUR LEVITT
         CHAIRMAN, U.S. SECURITIES & EXCHANGE COMMISSION
         "INVESTOR PROTECTION: TIPS FROM AN SEC INSIDER"
                     INVESTORS' TOWN MEETING
              ADAM'S MARK HOTEL -- PHILADELPHIA, PA
                          JUNE 11, 1996
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I know that for some of you, this may be the first time you've had
occasion to meet anyone from the Securities and Exchange
Commission.  Maybe no one thought we had many interests in common. 
I'm here today because I think we do.  

In the 1990s, more than ever before, the people of America are
investing in America.  There is a startling new economic fact of
life in our nation:  for the first time in history, mutual fund
assets, at about $3.1 trillion, now exceed the deposits of
commercial banks.

Through mutual funds and other investments, you are the biggest
holders -- directly and indirectly -- of American stocks and bonds. 
Not the banks, not the insurance companies, not big businesses --
but people like you.

The massive movement into our securities markets has provided new
opportunities for investors -- and new opportunities for America. 
But it's also increased risk -- and it's created confusion and a
greater potential for abuse.  It's a complicated field, and there
are misconceptions even about such relatively simple products as
mutual funds.

At the same time, although most people in the securities industry
are honest, some are not -- and they can do enormous damage to
people's lives.

Take the case of Richard Harley, who marketed $1.4 million of
unregistered securities in his Scranton company, Lazare Industries,
to some 72 investors.  The scam was reprehensible, but even more so
because many of the victims were AIDS patients.  Harley claimed
that an ozone and oxygen therapy his company offered had undergone
extensive testing, had been proven effective in treating AIDS, and
had been patented.  

None of those claims was true.  Moreover, not only had the FDA
never approved this "treatment" -- the FDA had determined that
Harley's promotion of his scheme violated the Food, Drug, and
Cosmetic Act.  This vulture played on people's sympathies regarding
AIDS, and on the emotions and desperate hopes of people struggling
with this dread disease.  It's hard to imagine a more despicable
crime.  

That's a pretty extreme example.  The overwhelming majority of
securities transactions are legitimate and take place without a
hitch.  But at the same time, there are some problems out there,
and it pays to learn how to avoid them.

I've spent a lifetime in the industry.  I've been a broker, a
manager, and I've run a large firm.  I've seen the best and the
worst it has to offer.  I'm here today to share that insider's
view, and to tell you about some practices that are not as well-
known or understood as they should be.  

I can't ensure that you'll make money -- no one can guarantee that
-- but I can point out some questions you should be asking, about
financial products and about financial advisors.

I'm here as your advocate, and I hope that by meeting with you and
listening to you I can also do a better job representing your needs
and your voices as individual investors.  

The new realities of our marketplace call for this new approach. 
We're not going to stop any of the things we do -- instead, the SEC
is doing more every day to forge a partnership with investors.  

We've created a series of easy-to-read brochures about choosing
brokers or mutual funds -- each of you should have them in your
folders.

We've instituted a toll-free Investor Information Line.  Callers
can now get answers to the most commonly asked questions from a
series of easy-to-use menus, or order our brochures.  The number is
(800) 732-0330; or, (800) SEC-0330.

We've put the SEC on the World Wide Web -- our address is
www.sec.gov.  SEC investment alerts, investor brochures, policy
announcements, and rule proposals are now readily available 24
hours a day, as well as our huge EDGAR database of corporate
information.  

These services are free.  But they will never replace the kind of
face-to-face contact we are having today -- the SEC must keep in
touch with investors, whose protection is our highest priority. 
Our meeting is one of many I have had with investors throughout the
country.  

The most important investment lesson I can convey to you comes down
to two simple words:  Ask questions.  

That's never been more important than it is today, when changes in
marketing and technology place so many more opportunities at
investors' doorsteps.  

In the past few months, for example, a number of small company
stocks have experienced staggering price increases.  Often enough,
there is little or nothing about the fundamental financial
condition of the company that would justify those increases.  On
the contrary, they seem to be fueled by speculative information on
the Internet, or by frenzied investor expectations.  In some
instances, such as the Comparator Systems case that the SEC
recently filed, it appears that the Company was making
representations about itself that were wildly misleading.

Our Division of Enforcement is looking at several of these stocks
to determine whether companies or broker-dealers have engaged in
manipulation or made false statements to the market.  But here, as
in other areas, responsibility begins at home.  My message to you
is not that investors should avoid the small cap or OTC markets --
which, as is so often said, may contain the next Microsoft or MCI. 
The small cap and OTC markets present excellent opportunities.

But you've got to ask questions.  What reliable information is
there to justify this investment?  Is it more like taking a chance
on a roulette wheel?  And above all, can I afford to lose every
penny I've put into this risky investment?  

There are many other kinds of questions you should ask before
investing in the market.  Some are about products, and some are
about those who sell them.

Let's start with a specific kind of mutual fund, a money market
fund.  When I look at the names of some of these funds, I see a lot
of reassuring words like "trust," "liquid," "government," "cash,"
"U.S.," "ready assets."  Well, I don't care if a fund is named "The
Rock Solid Honestly Safe U.S. Government Guaranty Trust Savings" --
in any market investment, you stand a chance of losing your
principal.

At the SEC, we're working to make prospectuses more useful, and
more user-friendly.  It's my aim to have these documents speak a
new language -- the English language.  Some funds are riskier than
others; we're exploring ways to better convey the different levels
of risk.  We've also worked with the industry to develop something
called the "Fund Profile," a prospectus summary with a concise
description of a fund's most important features, in Plain English. 


Once you own a fund, keep track of how it's performing relative to
others of its type -- not just quarter by quarter, but also over
the long term -- and evaluate it against an index such as the Dow
Industrial Average or S&P 500, for stock funds, or the Salomon bond
index, for bond funds.  A journalist once poked fun at Wall Street
indexes by saying they "predicted nine of the last five
recessions."  They're not infallible -- but they're the best
benchmarks we have.  Use them.

So far, I've talked about investments.  But some very important
questions have to do with the people recommending the investments.

Let me preface this part of my speech with a warning:  If you came
here expecting someone to trash brokers, you're going to be
disappointed.  I've been a broker, and I've managed brokers, and
that experience has made me one of the profession's most ardent
admirers.  I know the extremely important function they serve, and
how well they generally fulfill that function.

Good brokers are many -- there are lots of elderly investors with
nice estates, and plenty of parents with their children through
college, because some broker started them out on the right track
long ago.

Unethical brokers are few.  But you should know how to avoid them. 


We care a lot about this issue.  That's why we worked with the
industry to produce an ongoing education plan for sales forces last
year.  For the first time ever, brokers are now trained regularly
on rules, products, and ethics.  That's quite a breakthrough, and
there's more.

We also asked an industry committee to undertake the first-ever in-
depth examination of broker compensation structures, to see if the
way brokers are paid compromises the quality of advice they give
you.  Although much remains to be done, many firms have already
changed their compensation practices as a result of this report.

We've achieved a great deal.  But there's a limit to what we can
do.  That's where you can make a difference, by asking informed
questions.  

How many people in the room have ever asked their broker how he or
she gets paid?  

Commissions reward a broker for the quantity of his transactions,
not necessarily the quality.  There are other ways to do it.  Some
firms offer such alternatives as a flat fee, or a percentage of the
assets under management.  You can ask a broker, How do you get
paid?  Do I have any choices about how to pay you?  Does it make
sense for me to pay by the transaction?  Or should I be paying a
flat fee regardless of the number of transactions?

Brokers are sometimes paid more for selling mutual funds than
stocks, or the in-house brand of mutual fund over another.  Over-
the-counter stocks might pay a broker more than those listed on an
exchange.  And any item that comes out of a firm's own holdings may
have an extra incentive attached to it.  

In part, this reflects the greater risk a company takes by holding
a certain stock or bond in inventory; or in some cases, they may
simply feel they have too large an inventory of that product.

The extra compensation may encourage the broker to sell that stock. 
That's in her interest.  It may be in the firm's interest.  But it
may or may not be in your interest.  

Understanding that makes you a smarter investor.  Ask your broker,
Do you make more if I buy this stock, or bond, or fund, than if I
buy another?  If you weren't making extra money, what would your
recommendation be? 

Here's an easy one:  A broker will readily tell you the price for
which she'll sell a stock to you.  Ask how much she'll pay to buy
the same stock from you.  There's always a "spread" between the
selling and buying price -- shop around for the best price,
negotiate, be a smart investor.  I've known people to spend more
time comparison shopping for paper towels than for investments --
there's no excuse for that.

How many of you know where your broker sends your orders to be
executed?  Brokers sometimes have arrangements to have trades
executed on certain markets.  Sending your orders there may be in
the broker's best interest, but it may not get you the very best
price.  Knowing this can help you.  You may have noticed a change
in your account statement recently; the SEC now requires firms that
receive inducements for routing orders to tell you where they are
sending your orders and what that means for you in terms of the
prices you get.  In addition, we recently proposed rules that would
make it easier for you to get the best prices available.

How many of you have sat down to dinner with your family, only to
be interrupted by a phone call from a salesman who doesn't seem to
understand the word "No"?

This practice is known as "cold calling" -- there are actually a
lot of other names for it, but I can't repeat them in polite
company.  Cold calling can be a legitimate sales technique if a
broker is trying to open a door, establish a relationship, or get
to know a client's situation and needs.  New rules have been
written to compel a firm to stop calling you, if you ask to be put
on a "do not call" list, and to prohibit cold calls before 8 AM and
after 9 PM.  But you don't need a rule to tell you that you
shouldn't buy securities from someone you've never met, who calls
you with a "hot stock" or "inside tip."  There's a cardinal rule in
investing:  If it sounds too good to be true, it probably is.

It may not seem polite to ask about a broker's education and
disciplinary history; this has got to change.  Not so long ago, it
wasn't considered polite to ask a doctor for a second opinion. 
Just think of what you stand to lose if you don't ask.  Too many
people have lost their life savings because they were too polite to
check their broker's credentials.  Ask, How much training and
experience do you have?  Have you ever been disciplined?  And
remember: you can always check if any broker has a disciplinary
history by calling either your state securities regulator, or the
toll-free number of the National Association of Securities Dealers
-- 1 800 289-9999.  

Sometimes firms pay a bounty, known as "up-front money," for a
broker to leave one firm and come to theirs.  The broker routinely
asks his clients to come along with him.  I'm not saying you
shouldn't follow your broker to a new firm; but remember that the
up-front payment proves that the move was in his interest -- you've
also got to be convinced it's in yours. 

Along with these "up-front" payments, a broker who switches firms
will often receive a higher percentage of the commissions
generated, for example, in the first year.  This provides a
financial incentive to buy and sell for investors' accounts -- once
again creating a potential conflict between your broker's interest
and your own.  You can ask, Did they pay you to come over?  Do you
get anything, or anything extra, for bringing me along?

Let me note that the report of the Compensation Committee I
mentioned earlier addressed many of the questions I've outlined. 
It identified such "best practices" as paying the same commission
for in-house products as for others; paying a portion of
compensation based on client assets, so that brokers receive some
remuneration even if they advise a client to "do nothing";
prohibiting sales contests tied to specific products; and even
eliminating up-front bonuses, or at least disbursing them over a
period of time.  And many firms have already put an end to some of
the more troublesome practices --  for example, Merrill Lynch,
PaineWebber, Prudential, Dean Witter, and Smith Barney have all
eliminated extra compensation for selling in-house products. 
PaineWebber, Smith Barney, Merrill Lynch, and Dean Witter have
eliminated accelerated payouts for newly recruited brokers, and
Prudential has reduced them.  And Merrill Lynch, PaineWebber, and
Smith Barney have put an end to product-specific sales contests. 

Practices are changing -- and if you ask questions, they'll change
faster.

The bottom line of all of the questions I've highlighted today is
that a broker has a responsibility to his client.  A broker should
be expected to hold the client's interests above all others --
above his own, above his firm's, and above the industry's -- and
most brokers do so.  That's the definition of professionalism.

The SEC can and will demand that standards of practice in the
industry be higher.  But if firms hear that same demand also coming
from you as investors, change will come sooner.  I well remember
from my years in the industry that the only people who got our
attention faster than our regulators were our customers.

And so I'm here today, not just to offer help, but to ask for it;
not just to give advice, but to receive it; not just to speak, but
to listen.  I want to hear from you about the state of our
securities markets, and I want your help in making them better. 
For when all is said and done, the SEC is not about this rule or
that regulation -- it's about hardworking people seeking a better
life -- buying that new home, sending the children to college,
enjoying a decent retirement, taking that much-needed vacation. 
It's about the promise of America.

Help America fulfill that promise: become an educated investor.

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