From: Gregory Spear [gregory@spearreport.com]
Sent: Friday, May 31, 2002 6:20 AM
To: rule-comments@sec.gov
Subject: Release IA-2028. File # S7-10-02
May 30, 2002 

To: 
Jonathan G. Katz 
Secretary 
Securities and Exchange Commission 
450 Fifth Street, NW 
Washington, DC 20549-0609 

From:
Gregory R. Spear
Spear Capital Management, Inc.
2558 Albany Avenue
West Hartford, CT 06117

Re: Release IA-2028. File # S7-10-02
Comments on the SEC's Proposed Rule Regarding an Exemption from Section 203A of 
the Investment Advisers Act for Internet-Based Investment Advisers 

There appears to be a major discrepancy between the purpose of the proposed rule 
and the criteria by which an advisor would be eligible for registration with the 
Commission.

According to the rationale for the rule, the purpose of the rule is to alleviate 
the burden imposed upon advisors whose business: 
a)      Is not local, but truly national in scope, and 
b)      Who do not meet the requirements of $25mm under management for current 
Commission registration, and 
c)      Whose business model would likely require them to register in numerous states.

The criteria of the proposed rule, however, does not require that the advisor meet 
the above intended description of the beneficiaries, but instead requires the advisor to: 
  a)      Conduct substantially all of its business through an interactive website.


I would respectfully suggest that the one example envisioned by the Commission as a 
class of beneficiaries of this rule (Internet-based Advisors) has been transformed 
into an exclusive criteria for no logical reason.

This one group of advisors is a logical beneficiary of the rule, but there are other 
logical beneficiaries, and a larger number of them, who suffer all the burdensome 
costs and inconvenience of state registration despite their business being national 
in scope and who would be barred by the proposed criteria from taking advantage of 
the rule.

I would suggest that any advisor who meets the three-part description cited above and 
described in the rationale for the proposed rule should be eligible to take advantage 
of the rule, regardless of how much of their business is conducted on the Internet.

I would suggest that the criteria of conducting substantially all of their business on 
the Internet should be eliminated altogether in favor of the following criteria:

A.      The advisor's business is substantially national in scope, defined as: 
        1.      90% of its marketing dollars are spent on national media, 
        2.      Its clients are distributed nationally, in at least 10 states, 
        3.      It does not conduct a greater amount of business in the state where its 
offices are located than it does in other               similarly populated states, and 
        4.      It does not normally conduct its business in a face-to-face manner in 
any local office.
B.      It has at least 100 clients or $10mm under management.

The latter criterion is to save the Commission the trouble of processing registrations 
for advisors who have not established themselves as going concerns.

Note that no such criterion for numbers of clients or assets under management has been 
proposed for rule 203A-2. As the rule is currently formulated, any advisory business 
with a website infrastructure, even a start-up with no clients and no money under 
management, would be eligible for Commission registration. Any 16 year-old with a PC 
and a home-built advisory program could receive Commission registration.

Our own business is an example of the type of situation where my proposal would apply 
as soon as we become a little bigger.

We have about 80 clients and $9mm under management, just shy of both of my suggested 
criteria for size. We are five years old and have two and one-half full-time equivalent 
employees.

Our business is built on clients generated by a national newsletter published by an 
affiliated company. Like your Internet businesses, all of our marketing is national. 
We have only two clients in our immediate locale, and these are simply a coincidence. 
They, too, responded to national marketing efforts.

Because of our national positioning, we are now required to be registered in 12 states 
where we have exceeded the de minimus exemption. Because of the differences between 
the state requirements, the expense and headaches of these registrations is a burdensome 
drain on resources for a business of our size. We've been working on Utah alone for 
three months!! 

Like your Internet-based advisors, we conduct Substantially all of our business with 
our clients by electronic media (website, e-mail, phone and fax) or by mail. Like your 
Internet-based advisors, we do not conduct our business face-to-face. We have virtually 
no local business, and no more of a local presence than any pure Internet advisor.

Like your Internet-based advisors, we do not qualify for Commission registration because
we do not have $25mm under management.

The only difference between the Internet-based advisors and us is that we do not conduct 
most of our business on our website. I respectfully suggest that this has nothing to do 
with the intent of this proposed rule and is a purely arbitrary distinction. The suggested 
intent of the rule is not to arbitrarily help Internet advisors, but to help those 
whose business is national in scope and who have no local business per se, and who are 
nevertheless burdened with local registrations state by state because they do not meet 
the $25mm minimum for Commission registration. The proposed criterion of conducting 
substantially all of an advisor's business on the Internet arbitrarily selects one minor 
group of advisors from a much larger class of advisors who all suffer the pains of state 
registration despite the purely national nature of their businesses.

The Commission should change the criteria to cover the entire class, as suggested in 
A) 1,2,3,4 and B) above.

Thank you.

Sincerely,

Gregory R. Spear
President
Spear Capital Management, Inc.
 (860) 236-1900