Hearing Summary Library

Aug 10-13 - DOL Hearings on Proposed Defintion of Fiduciary

Department of Labor

Subcommittee on Financial Institutions and Consumer Protection

“Public Hearing: Conflicts of Interest Proposal”

Monday, August 10 – Thursday, August 13, 2015


Key Themes

  • BIC – Industry representatives stressed that the BIC exemption is unworkable. DOL’s Hauser stated that more comments on specific procedures that would allow the BIC exemption to work would be very helpful because the DOL is not seeking to eliminate the commission-based model, but rather to prohibit incentives that run contrary to the best interest standard.  In the later panels, Hauser repeatedly asked panelists if an exemption that required an enforceable, upfront commitment to act in the client’s best interests (possibly made at the point of sale if it could apply retroactively) and charge reasonable fees for services given could, in principle, be workable.
  • Mandatory Arbitration – Several supporters of the overall proposal were critical of mandatory arbitration, insisting that it does not provide investors enough protection.
  • DOL Jurisdiction – A number of panelists argued that the SEC is better suited to implement a fiduciary standard, while supporters of the DOL countered that only the DOL has the power to exercise jurisdiction over all retirement products.  Further, DOL speakers noted that Congress was the body that originally decided to split oversight jurisdiction.
  • Conflicted Advice – The DOL insisted that the rulemaking is intended to “mitigate, not eliminate” conflicted advice, and that the DOL would like to preserve the commission-based model and tamp down on conflicts.
  • RIA – Many complaints were raised with the DOL’s Regulatory Impact Analysis, especially regarding its estimates of the rules costs and benefits, and whether it used sufficient evidence.

DOL Speakers

  • Judy Mares, Deputy Assistant Secretary
  • Timothy Hauser, Deputy Assistant Secretary for Program Operations
  • Joseph Piacentini, Director and Chief Economist, Office of Policy and Research
  • Joe Canary, Director, Office of Regulations and Interpretations
  • Lyssa Hall, Director, Office of Exemption Determinations
  • Christopher Cosby, Division of Regulatory Policy Analysis, Office of Policy and Research
  • Lou Campagna, Division of Fiduciary Interpretations, Office of Regulations and Interpretations
  • Karen Lloyd, Division of Class Exemptions, Office of Exemption Determinations
  • Keith Bergstresser, Economist

For Written Testimonies, Hearing Related Materials, Requests to Testify, Public Comments and the Hearing Webcast Archive, please click here.

Panel 1

  • David Certner, Legislative Counsel and Legislative Policy Director, AARP
  • Charles Van Vleet, Chief Investment Officer, Textron Inc., Committee on Investment of Employee Benefit Assets
  • Marilyn Mohrman-Gillis, CFP Board Managing Director, Public Policy and Communication
  • V. Raymond Ferrara, Chairman and CEO, ProVise Management Group LLC

Key Points

  • All of the panelists, as well as the organizations they represented, were in concurrence that, though the rule was not perfect, it was long overdue and the regulation would better protect retiring seniors.
  • Ferrara claimed his business, ProVise, has been meeting a fiduciary standard without any substantial increased costs.


  • The panelists also were in support of the Best Interest Contract (BIC) exemption, even though a mandatory binding arbitration clause was included, because when advisors act in their client’s best interest, litigation is less likely.

Prepared Statements

AARP submitted two comment letters: one in support of the Department of Labor’s new proposed rule, and one in support of the BIC exemption.  Because of the increasing challenges facing those trying to save for retirement, Certner argued that investors need to know advice given to them is in their best interest.  Van Vleet was brief with his comments while on the panel, explaining that his company, “Textron” had been acting under a fiduciary standard and felt as though it was the correct way to operate due to fairness. 

Mohrman-Gillis expressed her support for a strengthened fiduciary standard, explaining her support for the rule.  Though she supported the DOL’s intentions, she felt as though the re-proposed rule is not perfect, and offered several suggestions in her comment letter.  She argued that CFPs and firms are more likely to adjust their policies than to abandon their middle class investors. 

Ferrara opened by explaining that, while it is true most financial advisors often want to act in the best interest of their client, a rule is important to ensure it happens.  He is in support of the re-proposed rule because he feels as though it will ensure advisors act in their client’s best interest. 


Hauser asked a question to the panelists in regard to the changing of timing requirements.  Mohrman-Gillis responded, arguing that changing the time requirement is not flexible enough to work throughout business models; in her organization’s comments, they had mentioned measures to handle it.  For existing contracts, she suggested updating and allowing the client to dissent.  For new contracts, she suggested explaining it to clients and matching their business model if possible

Hauser to Ferarra: In regards to the letter of support for Mandatory Binding Arbitration, “What gives?” Ferrara responded with, “We feel as though, if you are acting in the best interest of your client, there is less likely to be litigation.”

Lloyd asked whether there had been a problem with clients being uncomfortable when offered a contract.  Ferrara responded affirmatively, and suggested that a way to handle it is to go over the process prior to producing a contract.

Panel 2

  • Shaun O’Brien, Assistant Policy Director for Health and Retirement, AFL-CIO
  • James Keeney, Attorney
  • Kenneth E. Bentsen, Jr., President and CEO, SIFMA

Key Points

  • O’Brien urged the DOL to move forward with the rulemaking and avoid “loopholes.”
  • Bentsen offered to meet with the DOL to go through the NERA and Deloitte studies in response to Hauser’s questioning of their methodologies and data.
  • Keeney was very critical of the DOL’s reliance on mandatory arbitration and argued that it does not protect consumers effectively.

Prepared Statements

In his statement, O’Brien urged the DOL to “stay true” to a broad statutory definition of fiduciary retirement advice that avoids “tricks, traps and loopholes.”  He said the DOL should use its authority to grant administrative exemptions cautiously, but conceded that the DOL should be willing to provide greater clarity about what communications constitute advice.  Keeney also offered strong support for the proposal, but said its failure to prohibit mandatory arbitration is a “fundamental flaw” because arbitration fails to protect customers.

Bentsen reiterated SIFMA’s support for the implementation of a best interest standard, but said the DOL’s proposal is far too complex and prescriptive.  Specifically, he said the BIC exemption and principal trading exemptions (PTEs) are so complex that firms have concluded that they cannot be made operational.  Additionally, he was critical of the DOL’s Regulatory Impact Analysis (RIA) for not showing how the proposal would benefit the public quantitatively and underestimate its potential harm.


Hauser asked Bentsen to provide the survey questions, underlying data, and methodologies from the Deloitte and NERA studies cited in his statement.  Bentsen said SIFMA would be willing to meet with the DOL and walk through the studies.

Hauser, noting SIFMA’s support for a best interest standard but its concerns with implementation, asked if SIFMA could support the rulemaking if the DOL addressed all workability issues with the rule. Bentsen said this is “a lot to assume” and stated that SIFMA believes the best interest standard should be developed by the SEC.

Canary asked if there is any need for special rules dealing with the applicability of best interest rules to funded welfare plans or health savings accounts.  O’Brien answered that it is entirely appropriate to apply the definition of fiduciary investment advice.

Canary asked if any kind of mandatory alternative to arbitration would be acceptable.  Keeney responded that a voluntary, non-binding process would be better because it gives customers a chance to negotiate.

Canary asked about the seller’s carve out and what kind of communication would be sufficient for investors to have fair notice that what appears to be advice is a sales pitch.  Bentsen noted FINRA work to establish procedures for firms to comply with, and added that the DOL is being overly restrictive.

Panel 3

  • Barbara Roper, Director of Investor Protection, Consumer Federation of America
  • Nick Lane, IRI Chairman of the Board of Directors, Head of U.S. Life and Retirement, AXA, Insured Retirement Institute
  • David Blass, General Counsel, Investment Company Institute

Key Points

  • Roper made her initial points on the arguments to ignore; she listed three. She claimed that the financial industry works well mostly only for the firms, often hurting investors.
  • Lane opened up by stating the he supported the DOL objectives, however, if the rule as written is implemented, there will be negative and unintentional consequences.
  • Blass felt as though the proposed rule was complicated, confusing and lacked flexibility.  He opposed it as written and offered five solutions: 1) DOL must revisit the flawed justification of the rule in their analysis; 2) develop a more targeted fiduciary definition; 3) DOL needs to greatly simplify the rules exemptions; 4) DOL should avoid retroactively implementing the rule; and 5) DOL should abandon the high quality/low cost exemption.

 Prepared Statements

Roper opened the hearing by remarking about the “tiny good nuggets” comments in the thousands of pages of comment letters sent to the DOL, and explained that there were some arguments to specifically ignore.  The first was that the industry supported a best interest standard, just not the current proposal. The second argument was that the SEC should take over the rulemaking; claiming the SEC would make a narrow rule that does more damage than good.  Lastly, she added what she coined as “the industries favorite argument,” which claims that it may force financial advisors to stop offering these services.

Lane began his testimony by first saying he supported the DOL and their objectives, however he expressed concerns over possible negative impacts of the new rule.  He argued that the current proposed rule is unworkable, and it could cause financial concerns to small retirement accounts.  He offered some solutions, including better defining the term “education,” as well as addressing variable annuities.

Blass felt as though it should be innate for financial advisors to act in the best interest of their clients, however the rulemaking process is complicated and confusing, lacking flexibility for business owners.  He also offered five solutions to his concerns with the rule.  He felt that the DOL must revisit their flawed justification for a rule change.  Next, he requested there a more targeted definition of fiduciary. Third, he explained the DOL needed to greatly simplify the rules exemptions.  Fourth, he explained that the DOL should avoid retroactively implementing the proposed rules.  Lastly, he argued that the DOL should abandon the high quality/low cost exemption.

Hauser asked the panel: “is a seller’s exemption necessary and how can it be implemented without opening up a loophole?”  Blass responded that there should be a seller’s exemption, and emphasized that the investor should not be confused.  Blass also emphasized that he agreed with the definition of “recommendation,” but that there was a lack of clear definition in the proposed rule.

Hauser again asked Blass a question, “should a simple disclosure line get you out of fiduciary duty?”

Blass responded by repeating his emphasis of not confusing the investor, while also maintaining his stance on relying on the totality of circumstances.  If there is an obvious establishment of trust between a client and a firm, then the fiduciary standard should be held.

Hauser asked Lane, throughout the initial stages of talking with a financial advisor, and the numerous back and forth discussions, is there an education component? Lane responded with yes there is, and that they often discuss the concerns of the client (such as outliving their income).

Roper became involved in this conversation, arguing the desire for life-long income is clear, however, the road to getting there is not.  She further stated that there are some options that are good for the investor, while others are good for the firm, and the new rule would disallow some that benefit the firm.

Panel 4

  • Mercer Bullard, Director, Business Law Institute, University of Mississippi School of Law
  • Felicia Smith, Vice President and Senior Counsel for Regulatory Affairs, Financial Services Roundtable
  • Michael Finke, Director, Retirement Planning and Living, Texas Tech University

Key Points

  • While supportive of the DOL’s proposal, Finke suggested studying the investment practices of those without financial advice.
  • Bullard was very critical of the arbitration process, insisting that would not be effective in an ERISA context or with the BIC.
  • Smith explained FSR’s SIMPLE PTE proposal as an alternative to the DOL process that could harmonize with efforts towards a uniform fiduciary standard.

Prepared Statements

Bullard offered examples of how commission structures can distort incentives, but then argued that the DOL’s proposed rule would have “generally no effect” on financial advisors’ incentives other than eliminating banned product types.  He added that BIC would not be enforceable in arbitration.

Finke likened financial advisors to doctors and argued that the assumption of a fiduciary standard of care exists in other such cases of “imbalance of information.”  He suggested that it would be reasonable to also study what a worker would have invested in without an advisor because the result may be worse.  He further advocated that the financial services industry could work to create standardized retirement income products that can be easily compared by consumers.

Smith supported a best interest standard from “front-line” financial regulators.  She called the DOL proposal “extremely complicated and impractical” while criticizing the DOL’s estimates of its costs and warning of many unintended adverse effects. To combat bad actors, she called on regulators to enforce existing laws.  She also explained FSR’s SIMPLE PTE proposal as an alternative to the DOL rulemaking.


Hauser asked Smith a series of questions about FSR’s SIMPLE PTE proposal and how it would impact the alignment of advisor incentives with their customers’.  Smith explained that the proposal would leave this to firms’ internal controls, but that regulators would ensure that proper procedures are in place.

Hauser said most of Bullard’s presentation of how commissions affect incentives would seem to be address in the DOL’s proposal, but that Bullard said the proposal would have little effect.  Bullard answered critically about the DOL’s reliance on arbitration, saying it would not be effective for ERISA-related claims or the BIC.

Piacentini asked Smith about monitoring at firms and how they look for instances where compensation incentives might affect the advice given.  Smith explained that firms often use their compliance departments to create exception reports that lead to internal conversations about the justification of different actions.

Panel 5

  • Jon Breyfogle, Groom Law Group Chartered, America’s Health Insurance Plans & Blue Cross Blue Shield Association
  • Stephen Saxon and Thomas Roberts, Groom Law Group Chartered, Group of Insurance Company Clients
  • Ron Rhoades, Program Director / Assistant Professor of Finance, Gordon Ford College of Business, Western Kentucky University

Key Points

  • Breyfogle urged for exclusion of Health and Wellness Plans, as well as Health Savings Account Platform Providers, from the proposed rule; DOL representatives responded that the rule is intended only to cover “investments products,” and not products such as health or life insurance.
  • Saxon and Roberts called for a re-proposal of the rule, stating that the current language was “unworkable,” and requested consistency with certain existing insurance laws.
  • Rhoades attacked the proposed FINRA best interest standard, and asked that the DOL, while making reasonable accommodations, ensure that industry conforms to the proposed standard, and that the standard does not change to accommodate current industry practices.

Prepared Statements

In his statement, Breyfogle addressed two possible “unintended consequences” of the proposed rule: specifically that 1) the rule would cover health and welfare plans; and 2) that the rule would have negative impacts on HSA platform providers.  He warned that any “chilling” effects on information in the insurance marketplace at this time would be particularly dangerous given the state of flux in the market.

Saxon and Roberts addressed concerns from the insurance industry in regards to annuities, and asked that the DOL provide a carve-out when there would be no reasonable belief that the advisor was engaging in an unbiased action.  Further, they stated that the current proposed exemptions – which lump together annuities and investment-only products – were a poor fit for annuities, due to fundamental product differences. Moreover, Saxon and Roberts claimed that the rule, as proposed, would diminish individual and small employer access to advice and annuity products.

 During his statement, Rhoades provided background on a number of academic studies related to the financial markets.  The studies generally argued that the suitability standard is outdated, and that the current regulatory structure is insufficient to protect investors.  Specifically, he attacked the proposed FINRA best interest standard as “nonsensical,” arguing that the FINRA proposal blurs the lines between those representing buyers and those representing sellers.


During the first question, the regulators stated that they do not view the rule as covering products such as health and life insurance, but asked why, if a health plan is funded by investments, such a plan would not need the protections of the proposed rule – especially if the provider was able to “walk away” from funding the benefit.  Breyfogel emphasized that the major difference between such plans and IRAs is that the provider, and not the beneficiary, bears the investment risk.

Another regulator asked Saxon and Roberts about how far their suggestion of “clear bias” would go, and expressed skepticism concerning a contention that a professional calling themselves an advisor during a 1-on-1 session would clearly be biased in the offering of advice, though he did leave room for the possibility of providing an exemption when a discussion is held in response to an RfP.  Rhoades echoed the skepticism and stated that he has had “hundreds of clients” who believed that the financial services professional was acting in their best interests in such an exchange.

In response, Saxon and Roberts argued that, given the different sets of facts and circumstances that arise during any particular interaction, it was important that the DOL not rely on a “blanket application” of the proposed rule.

The regulators then asked Breyfogle, Saxon and Roberts if their clients would be able to accept a best interest standard, combined with the proposed exemptions (specifically the best interest contract exemption), if the requirements of the rules and exemptions were more specifically stated. The regulators also appeared receptive to conforming the proposed rule to certain existing insurance laws.  All three panelists seemed amenable to such possibility, and Saxon and Roberts reiterated their call for a re-proposal in order to consider any changes DOL might make in that regard.

Panel 6

  • Maurice L. Stewart, Executive Consultant, Penn Mutual Life Insurance Company
  • Stephen McCaffrey, Chairman, Plan Sponsor Council of America (PSCA)
  • Bartlett Naylor, Public Citizen

Key Points

  • Stewart argued that there is no need for a fiduciary standard because the industry currently acts in its clients’ interests.
  • McCaffrey said his organization supports the DOL’s proposal; however, they are concerned with the restrictions the rule places on financial advice and the higher fees caused by this rule.
  • Naylor stated that mandatory arbitration is a “fatal flaw” in the regulation, but his organization supports the overall regulation.

Prepared Statements

Stewart stated that companies like Penn Mutual will fire any professionals that do not act in their client’s interests and allow for the prosecution of the former employee if it is necessary.  Secondly, organizations like the Financial Services Professional Society can self-regulate by ensuring their members take a pledge to serve in their client’s best interests.

McCaffrey stated that PSCA is concerned with the restrictions the rule places on financial advice and the lack of education the rule would create.  Secondly, the higher fees caused by this rule proposal would harm smaller savers.  He proposed that the DOL work within the framework of 961 in order to remedy this situation.  McCaffrey also called on the DOL to give examples and clarify language in the final version of the regulation.

Naylor elaborated about literature and the philosophical flaws in the way the financial services industry operates.  At the conclusion of his remarks, he stated that his organization is opposed to the mandatory arbitration clause of the regulation because it does not permit class-action lawsuits.


Hauser asked McCaffrey what kind of specific pieces of advice should be allowed.  McCaffrey stated that the professional should be allowed to lay out specific options of plan before the contract is signed between the professional and client.  Hauser retorted that McCaffrey’s interpretation of the rule was not correct because the regulation allows for this kind of education.

Hauser asked Stewart if the timing of the contract was a key contention for Stewart’s opposition to the rule.  Stewart said yes but that he would need to see it in the final version for him to say it was agreeable.

Canary asked Stewart what kind of education investors needed.  Stewart used two examples of different investors and the type of education he would provide them.  He said it would be impossible to have a list of specific pieces of education that professionals could give to a client.

Panel 7

  • Arthur B. Laby, Professor, Rutgers University School of Law
  • James R. Allen, Chief Executive Office, J.J.B. Hilliard, W.L. Lyons, LLC
  • Scott Stolz, Senior Vice President, Private Client Group Products & Solutions

Key Points

  • Laby advocated for the DOL to continue with its rulemaking in spite of the arguments that the agency should defer to the SEC or FINRA.
  • Allen sought a re-proposal of the DOL rule, noting that the FINRA proposal was “on the right path.”
  • Stolz, in calling for the elimination of the contract requirement from the Best Interest Contract (BIC) exemption, noted that the debate is not a question of whether advisors should act in their client’s best interest, but rather a question of “how we get there.”

 Prepared Statements

In his statement, Laby provided background information on the difference between the suitability and best interest standards, and called for the DOL to move forward with its proposed fiduciary standard in the retirement space despite objections that the agency should defer to others.  Laby stated that the DOL were the experts in the retirement space, and that the industry was sufficiently sophisticated to deal with different standards on different products.

Allen highlighted that the vast majority of small-balance IRAs were in brokerage (as opposed to advisory) accounts, and that smaller investors clearly preferred the brokerage structure.  As such, he argued that the rule is unworkable in its current form, and that the proposed rule would have negative effects on consumer choice, cost and access to retirement products.

Stolz advocated for standards similar to the provisions in the Raymond James “Client Bill of Rights,” and called for the DOL to ensure that the any proposed rule did not encourage “Monday Morning Quarterbacking.”  Specifically, Stolz highlighted a number of issues with the BIC exemption, stating that other professions held to high standards (such as doctors and lawyers) are not required to enter into a specific contract.  Instead, Stolz proposed a framework that relied upon agency cooperation to use existing securities regulation and processes to enforce a universal best interest standard (without the need for a contract) and full disclosure of all relevant information.


Regulators inquired as to whether, given the Raymond James Client Bill of Rights, the document’s references to “advisors” and not “sales persons,” the document’s seeming consistency with a best interest standard and its calling for full and fair disclosure, as well as reasonable fees, the objections from Raymond James were a result of operational issues.  Stolz replied that he believed the Client Bill of Rights was consistent with the standard currently placed on advisors, and that it was unnecessary to require a separate contract.

A discussion ensued between regulators, Stolz and Laby regarding the necessity of the contract in the BIC exemption.  Laby noted that advisors already sign a number of contracts with clients, and the rule would merely shape the form of such contracts.  Specifically, Stolz claimed that the contract would place new requirements on advisors and “lowers the work” for plaintiff’s in a lawsuit.  Further, Stolz argued that anyone in business would be conflicted in some way – even under the proposed fiduciary standard.

Subsequently, the regulators asked Allen his opinion on previous objections to mandatory arbitration provisions, and Allen replied that – from a regulatory standpoint – arbitration is more professional and stronger than it has ever been.

Laby was asked his position on the FINRA proposal, which was based on SIFMA’s suggestions. Laby stated that he could not provide a position, because it was too difficult to tell what FINRA meant by “best interest” in their proposal.

Regulators then inquired into the panel’s opinions on the claim that the “without regard” language meant that advisors could not be paid without having an interest in the recommendation.  Laby stated that the rule could use more “fleshing out,” and Stolz stated that more clarity would be helpful.  The regulators responded that the rule was “quite plain” that it does not mean an advisor cannot be paid or sell proprietary funds.

Further, in response to a question on whether additional guidance was needed in regards to variable annuities, Stolz stated that it was important – when judging reasonable compensation – to consider the compensation in regards to the lifetime of the product.

Finally, the regulators asked for opinions on the education provision in the proposed rule.  Allen stated that it was important for advisors to be able to use specific examples when explaining products, in order to be as informative as possible, while Laby stated that he thinks that the current proposal “gets it right,” and that the question is whether the advisors statements were “evaluative” of the product.

Panel 8

  • Sean Collins, Senior Director of Industry and Financial Analysts, Investment Company Institute
  • Jonathan Reuter, Carroll School of Management, Boston College
  • Antoinette Schoar, MIT Sloan School of Management
  • Carl Wilkerson, Vice President and Chief Counsel, Securities and Litigation, American Council of Life Insurers

Key Points

  • Collins was very critical of the DOL’s Regulatory Impact Analysis (RIA), calling it “fundamentally flawed. He estimated that it would result in $109 billion in lost returns.
  • Reuter and Schoar argued in favor of the DOL proposal, citing evidence of some brokers steering clients toward higher-fee funds.
  • Wilkerson discussed the UK’s Retail Distribution Review, noting that it has caused 11 million investors to fall into an “advice gap” and that the UK’s Financial Conduct Authority is now reviewing the regulation.

Prepared Statements

Collins called the DOL’s Regulatory Impact Analysis (RIA) “fundamentally flawed” for a three primary reasons: 1) it does not compare the performances of fiduciary vs. non-fiduciary advisors; 2) it misapplies the numerical results of key studies and overstates the rule’s benefits; and 3) it fails to consider that investors may face increased costs from a forced migration to fee-based accounts, or otherwise lose advice altogether.  He said the DOL’s projected savings on $44 billion for investors is “totally unfounded” and offered an estimate of $109 billion in lost returns instead.

Reuter discussed two papers that he co-authored, arguing that conflicted advice is “both common and costly.”  Based on his evidence, he said broker client portfolios are heavily tilted towards funds with higher costs.  Schoar agreed that the current structure of the advice market allows for conflicts that lead to sub-optimal advice, and argued that fiduciaries do provide better advice.

Wilkerson offered many of the same concerns as Collins, and added that the RIA uses outdated data and does not consider the benefits of annuities and in-person advice.  He also mentioned the United Kingdom’s Retail Distribution Review (RDR), noting that it has caused 11 million investors to fall into an “advice gap” and that the Financial Conduct Authority is now reviewing the regulation.


Piacentini asked Collins whether his examinations have attempted to isolate the potential scales of conflicts of interest and whether performance varies with the size.  Collins stressed that evidence shows people are directing their assets to front-load funds that outperformed the average fund or had below average expense ratios.

Piacentini then asked whether advisor incentives have bearing on where funds are directed.  Reuter answered that based on broker portfolios he has seen, funds that pay higher commissions have higher concentrations.  Schoar turned attention to the quality of advice, and stated that brokers tend to advise against lower-fee funds such as index funds.

Piacentini asked what more is needed to evaluate how people are faring under current protections. Wilkerson replied that a full consideration of current rules is necessary, noting that FINRA rules and supervision have changed since the initial DOL proposal.

On the RDR, Piacentini said he is interested in the review now taking place and asked what lessons could be drawn from the UK.  He added, however, that other factors may be impacting the demand for advice in the UK and the associated “advice gap.”  Wilkerson conceded that the RDR is not identical to the DOL proposal, but stressed that small savers critically need access to advice, especially to help manage times of stress.

Hauser suggested a need for a comparison of how performance varies based on conflict, but Collins argued instead that the best approach would be to study how investors perform with fiduciary advisors as opposed to brokers.

Piacentini questioned why a comparison of commission-based vs. fee-based models is needed if the proposal is trying to preserve the commission model, but without “harmful bias.”

Mares denied that the proposed rule would “force” a move to fee-based accounts.  She asked why, if the industry supports acting in the customers’ best interest, it would force investors into the fee-based model.  Collins said small balance investors would not be able to access advice through fee-based models, and they would then lose advice altogether.  Hauser said the DOL’s goal is to preserve both models, but to structure an arrangement that preserves a commission-based model that tamps down on conflicts of interests.

Cosby asked if conflicted advice is better than not receiving any advice.  Wilkerson repeated that not having advice is very detrimental to small and medium savers.  Collins turned the question, asking whether the proposal should be forcing low-balance into a situation with no advice at all, and stressing that investors should have a choice.

Panel 9

  • Ron Bird, Senior Regulatory Economist, U.S. Chamber of Commerce
  • Benjamin F. Cummings, Erivan K. Haub School of Business, St. Joseph’s University
  • Anthony Webb, Senior Research Economist, Center for Retirement Research at Boston College

Key Points

  • Bird specifically focused on, and criticized, the DOL’s rulemaking process, arguing that the Regulatory Impact Analysis (RIA) was insufficient and lacked the necessary data to support such a rulemaking.
  • Cummings called for increased advisor education requirements, the removal of the mandatory arbitration provision, and argued that industry contentions that the proposed rule would limit investor access to advice were inaccurate.
  • While strongly supporting the proposed four-part test to determine fiduciary capacity and the expansion of protections to IRA and IRA rollover advice, Webb stated that industry objections to the Best Interest Contract (BIC) exemption were “minor wrinkles,” not “major obstacles.”

Prepared Statements

In his statement, Bird specifically sought to address the process by which the DOL developed its RIA; not the efficacy of the proposed rule itself.  He emphasized the necessary of following a “right process,” and criticized the DOL’s RIA for not relying on adequate data.  Specifically, Bird cited a failure to fully examine alternatives and provide cost/benefit analyses, as well as a failure to provide an adequate rulemaking baseline.  Bird called for an updated RIA to be produced and released for public comment.

Cummings acknowledged his general agreement with the rule, but noted three areas that required specific attention.  First, Cummings contended that there was a weak basis for claims that the proposed rule would limit access to retirement advice, citing a study that showed advisors who transitioned from a brokerage model to an advisory model saw “no change” to “an increase” in business.  He also emphasized the need for improved training and education of advisors, arguing that if an advisor does not understand a product, neither will the client.  Finally, Cummings called for the removal of the mandatory arbitration provision, claiming the provision would “limit the benefits of the proposed rule.”

During his opening statement, Webb provided an overview of the structure of the proposed rule and discussed an outside estimate that conflicting advice results in a $17B loss annually – which he believed to be a conservative estimate of actual losses.  Webb voiced his strong support for the new four-part fiduciary test, claiming that the current five-part test is “easily avoidable,” and further supported the expansion of protections to IRA and rollover advice.  Webb specifically asked for a removal of the platform providers carve out (and offered a few alternatives), and stated that any objections to the BIC exemption were “wrinkles” that only required some tweaking of the exception to address.


Piacentini referred to a statement in Webb’s written submission which stated that if households were unaware of fees, then fees would be inefficiently high.  He asked Webb to explain this statement and inquired to the state of the current market.  Webb explained that if investors are unaware of fees, then investment companies have an incentive to increase such fees.  He further stated that he believed the current market was segmented between those who understand fees and those who do not.

Piacentini subsequently inquired about the reported unintended consequences of similar regulations in the United Kingdom.  Webb stated that while he was not fully familiar with the situation, he believes the industry “seemed to have coped relatively well” with the new requirements.

Piacentini then had a discourse with Cummings concerning access to advice at affordable price points, the role of robo advisors (whether such services were adequate for investors if they were the only options available at certain price points), and whether new business models were giving rise to new potential conflicts of interest.  Cummings replied that firms are already offering fiduciary advice at affordable price points and emphasized that tech driven advancements were bringing in new advisors and leading to new innovation.  He stated that regardless of the model and the conflicts, the important goal was to identify and address said conflicts – not eliminate them.

Piacentini asked Webb to discuss the relationship between product complexity and degree of risk.  Webb returned to his opening statement and argued for the education of advisors, arguing that lack of understanding of complex products is likely an impetus for compensation-driven investment advice.  He noted that this is inherently an issue of firm culture that the current proposal addresses.

Piacentini followed up by asking Bird whether or not the RIA should seek to account for both unforeseen benefits, as well as negative unintended consequences.  Bird stated that the RIA should consider all risks and uncertainties – good and bad – but that the existing risks and uncertainties chapter of the RIA was insufficient.  He further stated that more extensive reliance on surveys, experiments, and data would serve to minimize such uncertainties.

Bergstresser asked Cummings for specifics on how to incentivize training, to which Cummings replied that the current proposal does so sufficiently.

Bergstresser then sought specifics on possible surveys that would mitigate unintended consequences, and asked specifically about the consumer finance survey.  Piacentini joined the question by asking about a GAO study, as well as an experiment that was discussed during the 8th panel.  Bird agreed that the GAO study and the discussed experiment were the types of information that should be relied upon, but that those specific items were only a start, and that such a large rulemaking required significantly further study.  Specifically, Bird criticized the 60 hour estimate for development of BIC exemption templates, stating that the estimate was “pulled out of the air.”

Panel 10

  • Martin Neil Baily, Senior Fellow, Brookings Institution
  •  J. Lee Covington II, Senior Vice President and General Counsel, Insured Retirement Institute

Key Points

  • Baily opened his statement by saying that the proposed rule mostly concerns the class, and that those saving for retirement benefit from good advice.  He supported disclosures and advised that they be simplified for the investors to understand.  He commented that the DOL proposal risks limiting access to advice, as is now happening because of the Retail Distribution Review (RDR) in the UK.  He stressed that the DOL should be thinking about how to simplify the rule so that business models serving small savers can continue to exist, even if they charge small fees, because savers “are better off anyway.”  He further called on the DOL to clarify the line between education and advice, suggesting that standardizing the information that can be provided could work.  Overall, he said the rule could have benefits with some revisions.
  • Covington II said he wants to ensure protections for those investing in retirement, while also expressing his support of the benefits of annuities.  He argued that the Best Interest Contract (BIC) exemption is not workable enough to feasibly support variable annuities and that trying to comply with the BIC is economically impractical for some insurers. 

Prepared Statements

Baily said that retirement savers can benefit from good advice, but that information is asymmetric so it is difficult to get perfect results.  However, he says that good advisors will make clients much better off, even if there are fees paid to the advisors.  In regards to disclosure, he felt that a standard form that lists and outlines the fees is a good alternative to the current rules, which limit access to advice.  This is occurring now in the UK, and the DOL should be considering a way to simplify business models adopted for small savers.  While the DOL argued for more online solutions, Baily claimed that face-to-face interaction is still needed.  He argued that a “MyRA” account is not a good option, because the rate of return is too low for any truly beneficial savings to take place.  Lastly, Baily discussed the need for clarity between education and advice.

Covington came out by thanking the DOL for their collective effort when drafting this rule, but remarked that their letter requested changes to the proposal.  He started out by talking about annuities and the benefits that they provide.  He claimed that since American’s are living so long, there is a major risk of outliving savings, and that one of the only ways to have guaranteed lifetime savings is through annuities and IRA rollovers.  He also said that work must be done to ensure that access to annuities are not affected by the rule.   

Covington then expressed his concern that the BIC exemption was not feasible for annuities and that it is important to emphasize rule 84.24.  Even if the requested changes to the BIC exemption were adopted, insurers would still have to undertake costly changes to determine the applicability of the exemption to various transactions.  Also, he argued that there was a lack of clarity on the responsibility of insurers.  He offered solution to restore Variable Annuities to the 84-24 rule. 


Piacentini asked Baily how to balance incentives that create conflicts of interest while preserving access to advice for middle and lower income investors.  Baily responded by mentioning the importance of people receiving good advice, and that receiving this advice is worth facing some conflicts of interest.

Piacentini asked if a general disclosure of fees could be effective.  Baily said a middle ground is needed between an incomprehensible disclosure and one that is overly simple.

Piacentini asked Covington how, if compensation and fee data is often fragmented, an institution can monitor fee arrangements and ensure they are operating in the best interest of clients.  Covington responded by explaining that institutions would look at the current regulatory scheme, and explained that there is supervision in place to ensure compliance with client best interest in mind.

Hauser asked Covington what concerns he had with the BIC exemption.  Covington pointed to regulatory requirements and operational impacts, and noted that major concern was that the exemption does not work effectively for commission-based products.

Hauser asked Covington whether, if the DOL were to address his operational concerns, the proposal could be feasible. Covington answered that this would be a large assumption, but that he is willing to look at the proposal.

Mares asked whether there was a mechanism for consumers to shop with comparisons between fixed annuities.  Covington explained that there were such mechanisms and they were often web-based.

Crosby asked Baily to explain his points on the UK reviewing the RDR, claiming the studies he had read had been yielding good results.  Baily explained that although there were some gains from the rule, there had also been a decrease in access to financial advice.

Panel 11

  • Ralph Derbyshire, Senior Vice President and Deputy General Counsel, Fidelity Investments
  • Sheryl Garrett, Founder and President, Garrett Planning Network, Inc.
  • Charles Nelson, CEO, Retirement Voya Financial

Key Points

  • Derbyshire said the proposal has two fundamental problems: 1) it attempts to mitigate all conflicts of interest, despite the fact that such conflicts are wholly inherent in any relationship between a buyer and seller; and 2) the exemption structure in the proposal in largely unworkable.
  • Garrett lauded the DOL’s work, and insisted that fiduciary advisors would still be available and accessible to all people to provide objective, competent advice.
  • Nelson offered three specific areas most in need of revision: 1) the BIC exemption, which he said is not practical and must be streamlined; 2) the large plan exclusion, which he said is far too limited; and 3) the restriction on education activities, which could have even bigger costs than the conflicted advice the overall proposal seeks to address.

Prepared Statements

Derbyshire said the DOL’s current proposal is unworkable because of two fundamental problems: 1) it attempts to mitigate all conflicts of interest, despite the fact that such conflicts are wholly inherent in any relationship between a buyer and seller; and 2) the exemption structure in the proposal in largely unworkable.  To remedy these problems, he offered Fidelity’s proposal that the rule should separate the rules of engagement from actual investment advice, with all advisors being clear about their services, fees, and potential conflicts.  Additionally, he said the exemption structure should be much broader and more principles-based.

Garrett lauded the DOL’s work, saying a failure to update current rules leaves Americans vulnerable to conflicted advice.  She noted that investors typically believe anyone giving them advice does so according to the client’s best interest, but because this is not true Americans are paying a “heavy price” in lost retirement income.  She said fiduciary advisors would still be available and accessible to all people to provide objective, competent advice.

Nelson stated that despite the proposal’s “admirable intentions,” it fails in its goals because of unintended consequences that will reduce access to advice.  He offered three specific areas most in need of revision: 1) the BIC exemption, which he said is not practical and must be streamlined, and whose new and untested legal liabilities could mean it will not be used by advisors; 2) the large plan exclusion, which he said is far too limited; and 3) the restriction on education activities, which could have even bigger costs than the conflicted advice the overall proposal seeks to address.


Hauser asked Nelson about his proposed “customer bill of rights,” which would replace the BIC exemption.  Nelson said the bill of rights would be an upfront disclosure to help investors understand the role an advisor plays and the types of compensation he would receive.

Hauser commented that it seemed that Voya Financial was not comfortable with having a best interest standard imposed on its advisors.  Nelson stated that such a characterization was not fair, and that Voya is in favor of acting in the interests of its client – but that doing so does not necessarily mean following the ERISA definition of best interest.

Hauser asked Derbyshire about his proposal and its disclosures, noting that it would not specifically explain all products and compensations.  Derbyshire answered that it goes back to the discussion of the proper balance of information, saying that incorporating everything into a single disclosure would not be doable but that offering a range of compensation would be reasonable.

Hauser asked if firms would be prohibited from creating incentives that might go against the best interest standard.  Derbyshire explained that financial institutions should be responsible for establishing their incentive structures and supervising their advisors appropriately.

Turning to Garrett, Hauser asked about the proposal’s impact on small savers.  Garrett noted that her firm has no minimum account sizes that would disqualify investors with modest assets, and that groups like the Financial Planning Coalition and CFP Board also offer advisors who would be willing to work with the low and middle income market.

Panel 12

  • Stephen W. Hall, Securities Specialist, Better Markets Inc.
  • Bradford Campbell, Outside Counsel, US Chamber of Commerce
  • Joe Collins, Certified Fraud Examiner

Key Points

  • Hall stated that his organization agrees with the rule, while urging that the DOL make the regulation final as soon as possible.  Additionally, he stated that the mandatory arbitration should be replaced.
  • Campbell argued that the rule hurts the way small businesses operate and their employees.  The Chamber's members believe that the regulation leads to a lack of advice and hurts smaller retirement accounts.
  • Collins stated that he was in the business for many years and saw bad practices that led him to become a certified fraud examiner.  He said professionals are incentivized to act against their client's best interests.

Prepared Statements

Hall stated that his organization agrees with the rule and urged that the DOL make the regulation final as soon as possible.  He argued that the DOL is the entity to put this regulation in place because Congress gave it the authority to regulate retirement accounts.  He added that the mandatory arbitration should be replaced because it is not what Congress intended and it leaves customers without legal options.

Campbell argued that the rule hurts the way small businesses operate and their employees.  The Chamber's members believe that the regulation leads to a lack of advice and hurts smaller retirement accounts.  Moreover, the regulation would require savers to replace fee-based accounts with transaction-based accounts, which leads to higher costs for savers.  He also stated that the list of assets in the rule is too prohibitive and lead to only specific assets being sold.  Campbell ended his comments by stating that eight months is not a long enough timeframe because it will be too costly for small businesses.

Collins said he was in the business for many years and saw bad practices that led him to become a certified fraud examiner.  He also stated that professionals are incentivized to act against their client's best interests, and this is why the regulation may not go far enough.


Hauser asked Campbell if the DOL went back to a regulation that would show clients all investment options, would the Chamber agree with it.  Campbell responded that they would have to see the final wording of that part of the regulation in order for the Chamber to say it works for them.

Lloyd asked Campbell about why the regulation prevents advisors from discussing specific assets.  He responded that if the assets an advisor wants to discuss are not on the DOL’s list, then the advisor is discussing prohibited assets.  Hall retorted by saying the list is appropriate. 

Panel 13

  • Gregory B. McShea, General Counsel, Janney Montgomery Scott LLC
  • Juli McNeely, NAIFA President (with Dr. Jennifer Knoll)
  • Joe Peiffer, President PIABA, Peiffer Rosca Wolf Abdullah Carr & Kane, PLC     

Key Points

  • McShea called the Best Interest Contract (BIC) exemption “unworkable,” and stated that his organization would not avail themselves of the exemption; leaving 40,000 existing customers without access to advice.
  • McNeely also claimed that the BIC exemption was “unworkable” in its current form, and argued that the true cost of the proposed rule would be the cost of “lost advice over time.”
  • Peiffer, of the Public Investors Arbitration Bar Association, stated that he had never had a client that understood that an advisor owed them a lower duty of care than that of a doctor or a lawyer, and that mandating a fiduciary duty would not lead to a drop in retirement advice access as many have claimed.

Prepared Statements

In his statement, McShea echoed SIFMA’s CEO Ken Bentsen and stated that the implementation of the proposed rule is at least as important as the rule’s intention.  McShea further stated that, while he is in favor of a uniform higher standard in investment advice, he believed the current proposal would result in an outcome opposite its intention.  He argued that the proposed rule would result increased investor confusion and cost, and would eliminate investor access to education and advice.  In addressing the BIC exemption, McShea referred to the Deloitte study put forward as part of SIFMA’s testimony, and stated that his organization “would not avail ourselves of it.”

As part of her opening statement, McNeely asked one of her personal clients, Dr. Knoll, to discuss her experience with McNeely.  Dr. Knoll provided an overview of her small business and her relationship with McNeely, stating that she was aware of the conflicts and the availability of fee-based services, but the commission-based structure was the appropriate structure for her business and her needs.  McNeely argued that this proposal would be a “win” for fee-based advisors (who generally work with wealthier clients and avoid products, such as annuities, that are lees helpful to wealthier clients), and that it would come at the expense of new investors, small investors, and small businesses.  Further, McNeely echoed McShea in stating that the BIC exemption was “unworkable,” and that it would lead to a loss of investors and increased litigation.

Throughout his statement, Peiffer highlighted his personal experiences as an attorney working on behalf of investors who had lost large amounts of their life savings.  He discussed the damaging effects of such loss, and claimed that the vast majority of such losses resulted from conflicted advice – particularly conflicted rollover advice.  Specifically, Peiffer cited a study that found that conflicted advice cost investors $17B annually, and claimed that the proposed rule would likely lead to less lawsuits (as the conflicts would be addressed at “the front end”).  He also stated that the rule would not result in lost access to advice, noting that a number of states already require a fiduciary standard, and that studies show no loss of access in those jurisdictions.


Campagna asked McNeely to explain her written comments seeking to exclude distribution advice from the proposed rule, and specifically asked if such advice would be coupled with particular investment recommendations.  McNeely replied that the inclusion of an investment recommendation would depend on the client, but given the importance of advice on distributions, such advice should be explicitly excluded from the proposed rule.

Hauser asked McNeely whether she believed the BIC could be a workable exemption if a number of changes were made, such as making it a simple document or only requiring a notice to existing customers.  McNeely responded that a number of particular issues would have to be addressed, including: the timing of the contract (i.e. application to new clients only and allowing the contract to be signed at the point of sale), the listing of warranties and an explicit statement that variable annuities and proprietary products could be considered to be in a client’s best interest.

Hauser then asked Peiffer about his view on the binding arbitration provision, and whether he believed there was a difference between the suitability standard and a best interest standard.  Peiffer stated that there was “absolutely” a difference, and that while PIABA opposes the binding arbitration provision, the organization chose not to comment on the issue as they would rather have the proposed rule than investor choice in arbitration.

Piacentini asked McNeely about her considerations in switching broker-dealers, and the role of technology, compensation, and products in that choice.  McNeely stated that her choice to change was solely one based on technology – she believed the products were essentially the same and her compensation structure did not change (in fact she now pays more fees to the broker-dealer) – but she made the change to access better technology to better serve her clients.

Finally, Campagna asked McNeely about her written comments seeking an expansion of the seller’s exception, and her contention that the education exemption should allow for specific examples.  McNeely stated that she would follow-up with regard to the seller’s exception, and that she believed that an investor should be able to receive as much advice as possible – at both the plan and IRA levels – until the point of making a recommendation is reached.

Panel 14

  • Edward Moslander, Senior Managing Director, TIAA-CREFF
  • Maria Freese, Senor Policy Advisor, Pension Rights Center
  • James Szostek, Vice President Taxes and Retirement Security, American Council of Life Insurers  

Key Points

  • Edward Moslander recognized that the DOL’s goal was to put retirement savers’ interests first, but felt there were certain modifications that could be made.  He supported the best interest standard, and felt as though it should always be the standard used by financial advisors.  Lastly, he discussed annuities and the difficulties the education carve-out may cause.
  • Maria Freese came out in support of the DOL’s proposed rule, claiming that brokers are not immune to understanding financial incentives, arguing in support of the definition of fiduciary and also declaring the BIC exemption workable and appropriate. 
  • James Szostek opposed the rule, attributing the negative consequences to the totality of all the individual problems.  He raised concerns about the BIC exemption, the definition of fiduciary and the difference between education and recommendation. 

Prepared Statements

Moslander began his testimony by mentioning that his company sought out to “serve those who serve others,” and that the DOL took on a similar objective when crafting this bill.  However, he suggested that there are certain modifications that should be made.  Most important, Moslander mentioned modifying the education provision to clarify and allow for ample access to education.  He felt, however, that once advice is individualized and recommendations made, the fiduciary standard must be met. 

That said, he disagreed with a “one-size-fits-all” concept, noting that some people benefit from an IRA rollover, however it is vital that the saver understand the risks of the rollover.  He also requested that in the education carve-out, such rollover distribution education is referenced and clarified.  When discussing annuities, he praised the products, mentioning the benefits they offer – benefits the rule might jeopardize.  He argued that, without clarification in the education provision, advisors run the risk of making it hard to educate consumers on, and sell, proprietary annuity products. 

Freese discusses the benefits of the rule, and admired the work the DOL had done.  She felt as though advice regarding distributions should fall under the fiduciary standard.  Also, she felt as though the boilerplate disclosure should not provide insulation for the advisor.  Lastly, she pointed out that the BIC exemption was appropriate and workable, though it could be strengthened; specifically in the area of rollovers and call centers.  She mentioned that, though it may seem obvious when something is a sales pitch, good salesmen or saleswomen will make it seems like a trusting relationship.  She ended by stating that American’s rely on advisors to appropriately guide them to correctly manage their retirement savings, and that unless the best interest standard is protected, ERISA won’t be able to protect savers. 


Hauser asked Szostek what he thought about the fiduciary standard including advice given related to distributions.  He responded that he agrees that when a call to action is initiated, it can be considered under the standard.

 Hauser then asked Moslander what alterations he would make to the education provision.  Moslander said his concerns fall with the applicability to proprietary products.  Szostek also noted that the text itself lacked clarity. 

Hauser followed-up by asking whether a cut-out would still be needed if the language is clarified to separate education from recommendations.  Szostek responded that the totality of all the minor issues of the rule caused concerns, and they would need to look at the proposal in its entirety. 

Hauser asked Szostek about his concerns on the affiliation provision, to which he responded that he would be willing to get back to him on all the specifics. 

Canary asked whether there would be concerns with the education carve-out, seller’s exemption, and mutuality requirement in the expanded definition of fiduciary. Freese responded that there would be significant concerns, even if an individual exemption is expanded.  Moslander responded by urging the DOL to be careful when expanding provisions, but that it can be beneficial if done correctly.  Szostek felt as though the concerns raised can be addressed and solved beneficially. 

Hauser asked for concerns regard the BIC exemption.  Moslander indicated his concerns related to the education carve-out and the training and sequencing of when the BIC exemption would apply.  Szostek and Moslander both agreed that clarity was the most important part of the exemption.  Szostek went further and explained that in the past, the exemptions were “if... then” scenarios, while this one is a “maybe,” which would cause concern in the industry. 

Panel 15

  • Caleb J. Callahan, Chief Marketing Officer, ValMark Securities Corp., on behalf of the Association for Advanced Life Underwriting
  • Joe Wimpee, Farmers Agent, Farmers Insurance and Farmers Financial Solutions
  • Richard Thissen, National President, National Active and Retired Federal Employees Association

Key Points

  • Callahan stated that the DOL should build on its existing framework to accomplish its goals and require a simple one-page disclosure that explains costs of a product.
  • Thissen expressed concern that holdings in thrift savings plans (TSPs) for federal employees and service members are not protected and said that people have been receiving bad advice when they are told to move funds from TSPs over to financial institutions.
  • Hauser said the proposal is “not about brokers vs. advisers” and that the DOL aims to permit all models to move forward.  He said the DOL is “trying to do light touch regulation” and require firms to “hold yourself out as giving the best advice to consumers.”

Prepared Statements

Callahan stated the DOL should build on its existing framework to accomplish its goals and require a simple one-page disclosure that explains costs of a product.  He noted that recent changes to disclosure rules have resulted in an increase in fee-based accounts compared with broker commission plans. Callahan stressed the importance of annuities and said that the DOL’s rule would prohibit new products created in response to the Treasury Department’s proposal on annuities last year.  Callahan also said the DOL proposal sends conflicting messages given the SEC’s fiduciary standard, and that the SEC would be best positioned to implement this framework.  He concluded that savers must have the ability to choose for themselves the products that are in their best interest.

Wimpee gave anecdotal evidence from his business explaining the importance of being able to provide education and recommendations to his customers at low costs.  He noted that most of his business’s revenue is generated from insurance rather than sales, which allows him to be “unemotional” about customer’s money.  He said the proposal would require him to pass on more costs to his customers.

Thissen supported the proposal and expressed concern that holdings in thrift savings plans (TSPs) for federal employees and service members are not protected, noting that more than 50 percent of people leaving service remove their funds from TSPs.  He said that TSPs have lower administrative costs than IRAs and that people have been receiving bad advice when they are told to move funds from TSPs over to financial institutions.


Hauser noted that the proposal does not prohibit the sale of annuities or the use of brokers and asked what in the proposal prompted comments that suggest this.  Callahan noted that when “digging in” to the exemptions the marketplace will remove access to certain products.

Hauser asked why the proposal does not reduce the level of investor confusion, noting that investors expect all advisors to be acting their best interest.  Callahan said that adding another standard with different definitions that overlap standards by the SEC will cause more confusion, noting that registered and non-register annuities have “two different paths” for standards.

Hauser said customers look to advisers for expertise and recommendations in their best interest and disclosure “does not get at this.”  Callahan said it is a false choice to suggest the there should be “regulation or none” and explained that it is easier to put money in a best interest account than a FINRA-regulated broker dealer regime.

Canary asked what dispute resolution system or alternatives to the FINRA model exist for circumstances that are not subject to arbitration.  Wimpee said he did not know what the resolution system would be, but supported the idea of having a clear disclosure that allows a broker to give good advice, noting that some investors have different needs and must be able to choose their best products.

Canary asked if the rule should cover life insurance if it has an investment component and if welfare programs should be covered.  Callahan said he is “not sure this is the most pragmatic approach.”

Canary said that annuities are already subject to different regulatory structures under 84-24.  Callahan agreed and said this does not reduce confusion. He added that the FINRA regime is “far more robust.”

Cosby asked how compensation structure works in Wimpee’s firm and if there is variable compensation or flat fees. Wimpee said his business does not currently have a mechanism to charge a fee, but that the proposal will force his business to create one.  He noted that his company charges an upfront commission and then adds the 12b-1 fees in the funds.  Cosby then asked how compensation works for lifetime income products and if they influence how advisers advise on these products.  Callahan said that most funds are fee-based and that variable annuities are based on commission.  He said compensation is filed with the SEC as a standardized commission schedule.

Panel 16

  • Gerald P. Cleary, American Bankers Association, Senior Vice President, Northern Trust Company
  • Joe Valenti, Director of Consumer Finance, Center for American Progress
  • Jean-David Larson, Director, Regulatory and Strategic Initiatives, Russell Investments

Key Points

  • Cleary focused his statements on the need for DOL to narrow the scope of the proposal in general and, more specifically, to exclude institutional investors.
  • Valenti advocated in support of the proposed rule and argued that investors of “modest means” were the ones that would be most helped by the proposed rule – despite what other panelists have suggested to the contrary.
  • Larson echoed Cleary’s call for a focus on retail investors, and identified areas to either narrow the scope of the rule or alter its mechanism.

Prepared Statements

In his statement, Cleary criticized the proposed rule for being “overbroad” and identified three primary areas of concern: 1) the definition of “recommendation”; 2) the inclusion of the institutional market; and 3) the inclusion of statements of asset value.  Cleary expressed concerns that the definition of “recommendation” in the proposed rule would prevent banks from offering a number of important services to clients by covering a number of communications where neither party would reasonably believe a special relationship existed.  Cleary suggested limiting the definition to only include instances of “clear investment advice” when “both parties” would be aware that the communication involved investment advice.

Cleary further argued that there was neither evidence of a problem in the institutional market, nor evidence that the current institutional market – which is currently operating off of 40 plus years of legal precedent – would benefit in any way from a new, untested standard.  Cleary also expressed concern that routine statements of value (such as a report of trust holdings) that are not provided based on a legal obligation would trigger the obligations of the proposed rule, and suggested that all statements of value that solely contain financial data be excluded from the rule.  He specifically referenced FINRA Rule 2111(b) as part of this discussion.

Throughout his statement, Valenti discussed the retirement savings crisis and its impact on a large number of Americans.  He also argued that the suitability standard has been rendered outdated by the market shift towards defined compensation plans.  He further highlighted the benefits of low cost plans, the dangers surrounding rollover advice, and the important protections the proposed rule would provide to “people of modest means.”  Additionally, Valenti noted that while he fully supported increased disclosures, any rule that relied on disclosure alone would “miss the point” of protecting consumers when they enter into a perceived relationship of trust.

Larson emphasized the social and economic imperative of increasing retirement savings, though he noted that the focus should be on retail investors.  He stated that the rule provided “no clear” benefit to institutional or sophisticated investors, and that he believed the seller’s exemption was too narrow. Larson further argued that the proposed rule should only apply to small and individual accounts. Additionally, Larson stated that the DOL should enable state and open multi-employer plans (MEPs) and that Russell was “eagerly awaiting” DOL guidance on the matter.  Larson subsequently advocated removing of the low cost safe harbor exemption from the rule and replacing it with an exemption along the lines of the “QDIA” (Qualified Default Investment Alternative).


Canary asked Larson and Cleary to clarify remarks concerning removal of the institutional market from the rule, and asked if they were concerned “textually” with the “plan fiduciary” language.  Larson reiterated that there was no clear benefit to institutional investors being covered by the proposed rule and that the initial scope of the rule should be limited, instead of creating an institutional exemption.  Cleary also reiterated his call to narrow the definition of investment advice (which applies regardless of the recipient) and to use a standard more akin to FINRA Rule 2111(b).

Canary followed-up by asking the best way to identify “sophisticated investors,” and asked how the panelists would propose excluding such investors from the rule.  Cleary and Larson both stated that existing securities law was a good starting point for identification purposes.  Valenti emphasized that such identification should not rely on a means test and that the DOL would also have to “consider taxpayer interest” in the development of the standard.  Larson stated that if the proposed rule was suitably narrow in scope, then a sophisticated investor exemption with relaxed conditions “made sense.” Cleary also criticized the proposed seller’s exemption for being unclear in “how far it goes.”

Canany asked Valenti for his position on the mandatory arbitration provisions in the Best Interest Contract (BIC) exemption.  Valenti stated that his comments were along the same lines of previous panelists, and explained that consumers do not understand arbitration agreements, nor do they have a choice, as nearly all services require signing such an agreement.

Canary then inquired as to Valenti’s stance on the proposed rule covering Health Savings Accounts (HSAs).  Valenti responded that HSA coverage was important, unless the DOL wanted to engage in “regulatory whack-a-mole,” as a result of advisors suggesting clients move funds into non-covered accounts.  He also discussed 529 college savings accounts in his comments.

Hauser questioned Cleary on his proposed “mutual agreement” standard for defining who and what is covered by the proposed rule, challenged Cleary with specific examples (notably the instance of a client who believes a fiduciary relationship exists, but where the advisor does not due to a contract disclaimer), and asked if an “objective test” to determine fiduciary capacity might be simpler.  Cleary responded that he believed that disclaimers, coupled with specific limits on professional actions, would be sufficient to address DOL concerns.  Larson stated that he believed an objective standard would work, as disclaimers and disclosures are not effective.

Valenti subsequently noted that effective disclosures are clear and targeted, and advocated for the use of “20/20 disclosures,” which allow for a clear comparison between products along a specific baseline. Larson implored the DOL to avoid over-focusing on less important considerations, such as conflicts and fees.  He stated that conflicts will always exist and that while fees are important, they are not nearly as important a factor as whether people are saving or how much they are saving.  He expressed concerned that any over-focus on fees may steer investors away from investing in the first place.

Hauser emphasized that the proposed rule was about “mitigating, not eliminating” conflicts, and stated that the proposed rule clearly did not apply to “any nugget of information,” as suggested in Cleary’s written testimony.  Cleary responded by calling for more specific examples, especially concerning “drawing the line” at the mention of a specific product.

Panel 17

  • Marcy Supovitz, President-Elect, American Retirement Association
  • Tim Rouse, Executive Director, SPARK

Key Points

  • Supovitz said ARA is supportive of the DOL’s efforts to impose a best interest standard, but that “disconnects” in the proposal would undermine its members efforts to serve clients in the best way possible.
  • Rouse said fiduciary standards should only apply where there is a clear expectation of the part of the client for one, and he commented that the proposal’s definition calls into question a variety of communications that cannot be reasonably viewed as investment advice.

Prepared Statements

Supovitz said ARA is supportive of the DOL’s efforts to impose a best interest standard, but that “disconnects” in the proposal would undermine its members efforts to serve clients in the best way possible.  She offered specific concerns: 1) the proposal could discourage advisors form working with workplace plan participants on rollovers, and a specific exemption independent from the BIC exemption is needed; 2) for investment education, when models for 401(k) plans are presented, the presenters should not themselves have to be fiduciaries as long as the model is populated by ERISA fiduciaries; 3) the definition of retirement advisor in the BIC exemption should be expanded to include small business retirement plans; and 4) there should be a minimum two year transition period for compliance with the rule.

Rouse said fiduciary standards should only apply where there is a clear expectation of the part of the client for one, and he commented that the proposal’s definition calls into question a variety of communications that cannot be reasonably viewed as investment advice.  Because of the broad definition, however, he stressed the importance of carve outs and called for expansions of the seller’s, education, and selection monitoring carve outs.  He also said the BIC exemption is not a workable solution for plan servicers, and called for a 36 month period before the implementation of the rule.


Canary asked if communications that are not individualized would be covered under the investment advice definition.  Rouse said the line should be clearly drawn to include instances with specific calls to action on a recommendation.  He said that under the current proposal, even if a communication is not individualized, it is covered by the definition if it is specially directed.

Cosby asked Rouse why the DOL should not adopt FINRA standards for what constitutes a recommendation.  Rouse answered that FINRA standards do not apply in the same way for retirement, and that a reasonableness standard should be used instead.  He explained that the FINRA standard was created for different regulatory structures.

Canary asked about the platform provider provision.  Rouse said that under the current rule, recommending a platform provider makes a service provider a fiduciary, but that this should not be the case.

Cosby asked Supovitz to expand on her concerns that the proposal could cut off advice to small business owners.  She explained that the BIC exemption is not available for the small plan market, and that this is just one of the issues with the BIC.

Cosby asked if the counterparty care out should be open to plans of all sizes.  Supovitz said the ARA does not necessarily have an issue with the current provision.

Canary asked whether recommendations regarding third parties or affiliates should be considered fiduciary advice.  Supovitz answered that it should, especially if a fee is collected as a direct result of the recommendation.

Panel 18

  • Dr. Marcus Stanley, Policy Director, Americans for Financial Reform
  • Dale Brown, President and CEO, Financial Services Institute
    • W. Mark Smith, Sutherland Asbill & Brennan LLP, on behalf of FSI
  • Jim Poolman, Executive Director, Indexed Annuity Leadership Council

Key Points

  • Poolman highlighted concerns with PTE 84-24, specifically regarding the definitions of “insurance commission” and “reasonable compensation.”
  • Brown commented that the application of different rules and standards to different types of accounts would be expensive and difficult to comply with, and urged functional coordination between the DOL, SEC and other regulators.
  • Stanley argued that the DOL should be implementing a fiduciary standard because it is the only entity with the power to create a consistent standard across all retirement assets.

    Hauser stated that more comments on specific procedures that would allow the BIC exemption to work would be very helpful because the DOL is not seeking to eliminate the commission-based model, but rather to prohibit incentives that run contrary to the best interest standard.

Prepared Statements

Poolman said extending a legal fiduciary standard to those selling fixed income annuities would only reinforce what has been a reality for years, but that the details of the final rule will be the difference between simple reinforcing these standards of conduct and hurting the abilities of insurance agents to serve their clients.  He highlighted concerns with PTE 84-24, specifically the definitions of “insurance commission” and “reasonable compensation.”  These constructive changes, he said, would not undermine the DOL’s objectives and ensure that insurance agents have transparent and fair standards.

Brown noted that FSI has consistently supported a uniform fiduciary standard, but that the current DOL proposal is too complex and unworkable.  Smith then explained specific concerns with the BIC exemption: 1) the proposed conditions governing compensation practices are not business model neutral, and do not provide advisors a clear path; 2) the written contract requirement is operationally challenging and inconsistent with investors expectations; and 3) the disclosure regime is too complex, overwhelming, and duplicative.  He added that the application of different rules and standards to different types of accounts would be expensive and difficult to comply with, and urged functional coordination between the DOL, SEC and other regulators.

Stanley stated AFR’s support for the DOL proposal, arguing that it would save retirement savers billions of dollars annually and that none of the critiques he has seen of the rule have been convincing.  He said the DOL must not weaken its proposal by further accommodating financial industry concerns.  Stanley further argued that the DOL should be implementing a fiduciary standard because it is the only entity with the power to create a consistent standard across all retirement assets.


Piacentini asked about disclosures of compensation structures to investors and how such disclosures might affect investors’ decisions.  Smith tried to explain that providing disclosures could affect decision making, but that he would have to think about the impact on investment results.  He clarified, however, that a disclosure-only approach is not what he was advocated for, and that it should be coupled with a sensible regulatory compliance regime.

Piacentini asked if the commissions for fixed annuities cluster around a single point.  Poolman answered that there is a “pretty compressed” range, and that including some sort of standard in an annuity safe harbor could give consumers basic protections.

Piacentini asked if an enforceable best interest standard would cause the variation in compensation for advisors across different recommendations to “naturally disappear.”  Stanley agreed that variation would lessen because it only exists to steer advisors to certain recommendations.

Hall asked about the workability of the BIC exemption.  Brown said he sees no structural reason why brokers cannot serve the best interests of clients, but that the biggest issue with the BIC exemption is certainty that a path for a commission-based model to thrive would remain.

Hauser stated that more comments on specific procedures that would allow the BIC exemption to work would be very helpful because the DOL is not seeking to eliminate the commission-based model, but rather to prohibit incentives that run contrary to the best interest standard.

Panel 19

  • Linda Rittenhouse, Director of Capital Market Policy – Americas, CFA Institute
  •  Kathleen M. McBride, Chair, Committee for the Fiduciary Standard
  • Kent A. Mason, Davis & Harmon LLP

Key Topics

    Rittenhouse came out in support of the DOL’s rule, and especially appreciated their aim to put the client first.She proposed simplifying certain aspects of the rule, while taking measures to reduce the cost of compliance and clarify when someone would become legally liable. 

    McBride claims that the DOL is doing a great job of attempting to fix the problem that Wall Street created, which resulted in loopholes leading to the depletion of retirement accounts.She then spent time talking about the dangers of rollovers, which could result in a loss of money when savers need it most.  Next, she attempted to debunk “myths” found in the arguments against the DOL rule.  Lastly, she spent time discussing the perverse effects of disclosure.

  • Mason came out against the DOL rule, utilizing surveys that he had conducted.These surveys found that no financial institution would utilize the BIC exemption, and those that would consider it would not be planning to utilize it within the eight month timeframe.  He also felt as though with the rule as written would make the jobs of these firms incredibly difficult, arguing that it would “be the only business that couldn’t promote their services.”  He cited the UK scenario, in which a similar provision was implemented which caused a mass exodus from the small account model.  He ended by offering solutions to this issue.

Prepared Statements

Rittenhouse supported the rule, especially in regard to putting the client first.  She felt that there should be one standard for all brokers, advisors, and financial counselor.  Further, she argued that all investors should trust their advisors, and that without this trust, they most likely won’t be confident in how their money is handled.  Rittenhouse declared that the current five part test is inadequate and allows for conflicted advice, which results in higher costs.  She did not give any credit to the claim that conflicted advice is better than no advice at all and also argued that, if this rule is implemented, then the services for low or middle income investors will be limited.  Lastly, she argued that the BIC exemption was too complex and lacks practicality, which could result in diluted effectiveness.

McBride opened her testimony by thanking the DOL for attempting to solve the problem that Wall Street has created, and that this challenge of the status quo is overdue.  She then spent her time discussing three things, including: IRA rollovers, “myths” related to the rule, and the perverse affects of disclosure.  She argued that those who don’t know that advice is conflicted will be more likely to rollover to an IRA, which could result in them losing money when they need it most.  She stated rollover advice was more like a sales pitch than advice.  She declared the proposal to be “workable, doable, and profitable.”

McBride then spent time attempting to debunk some of the arguments used by opponents of the new DOL rule proposal.  First, she claimed the myth that it cost more to receive advice from a fiduciary is untrue, using data from an FI360 study.  Lastly, she claimed that disclosures are effective, and particularly beneficial for advisors who would be able to insulate themselves from liability.  She supports this by arguing even advisors with good intentions can still give bad advice because it would benefit them. 

Mason thanked the DOL for agreeing to hear his testimony, however he found some issues with the rule as written.  The main point he made was that the DOL and the retirement community have an opportunity to do good for all investors.  He argued that, of the professionals he worked with, not one would use the BIC exemption – and even if they had entertained the idea, they would not do so within the eight month transition period.  He also stated that the ability to assist small businesses would be severely limited, and those programs meant to help those businesses would be removed.  At the end of his testimony, he offered a couple issues he would like to see solved, including the best interest standard, the inability for those in the industry to promote their products like every other industry, and the unworkable prohibited transaction provision. 


Hauser opened the question period by briefly discussing the areas of agreement, which he was discussing with Mason.  The two agreed that a best interest standard should exist, though the specifics of it were up for debate. 

Hauser then recognized that most of the areas of disagreement were operational issues, and gave an example of excluding rollovers from the BIC exemption. 

When Hauser inquired upon Mason’s stance on the best interest standard in the BIC exemption, Mason responded by expressing concern with the “without regard” language, and explaining that he feels it prohibits considering one’s own compensation. 

Hauser then asked about the “sky-is-falling” theories, which dictated that as a result of the proposed rule, the market would collapse.  Hauser explained, he “surely does not have that kind of power.”  Mason responded to Hauser’s belief, arguing that people doubted the theories recognizing the upcoming danger of pension systems, but they are currently in a bad situation. 

Hauser then discussed the survey used by Mason, which Hauser deemed as slanted.  Mason responded by saying the way he described the rule in the scenario is how he, and other professionals in the industry, believe it to be. 

Piacentini asked whether he thought the current rule would make it impossible to provide small business services, to which Mason responded by saying that the current rule prohibits it, because such services would be considered prohibited transactions. 

Panel 20

  • Michael L. Hadley and Joseph F. McKeever, Committee of Annuity Insurers
  • Edmund F. Murphy III, President, Empower Retirement
  • Jason Bortz, Capital Group Companies

Key Points

  • Hadley primarily spoke about his organization's concern with the regulation's potential impact on advice with annuities.
  • Murphy focused on his view that the education portion of the rule should be changed so that fiduciary advice is individual and a call to action. 
  • Bortz spoke about his concerns with the way the transition to fee-based accounts would occur and that the DOL should give firms some sort of roadmap on how this transition would operate.

Prepared Statements

Hadley primarily spoke about his organization's concern with the regulation's potential impact on advice with annuities.  He said lacking the ability to tell an investor what is in the plan or educate them on specific issues would hurt overall investor education.  He also stated that the education exemption should cover incidental advice as not being fiduciary.  Additionally, he argued that the exemption should consist of rules in PTE 84-24.  Hadley stated the annuity industry would need at least three years to comply with the new regulations.

Murphy focused on the impact that the new fiduciary standard would have on his organization.  He stated that the new standard could harm the level of advice that his investors could get because they are primarily low to middle income investors.  Murphy concluded by stating that the education portion of the rule should be changed so that fiduciary advice is individual and a call to action. 

Bortz focused on the fact that the DOL and his organization agree on the merits of the proposal, but that his organization had concerns with the way the transition to fee-based accounts would occur.  He also stated that hold recommendations should be grandfathered into the proposal.  Bortz concluded by stating that when the UK implemented a similar regulation, they gave businesses a lot of materials on how the transition would work and suggested the DOL does the same.


Campbell asked Bortz if he could describe wholesaling and how it would be affected by rule, as he mentioned in his comment letter.  Bortz said that some of the wholesalers within an organization may be considered fiduciaries even though they do not interact with clients, which is a big problem.

Campbell asked Murphy why he thinks advice should be individualized because that is not in the FINRA definition that DOL used.  Murphy said that individualized advice should be the standard because the proposal is too broad with its interpretation.

Panel 21

  • Theresa M. Seys, Vice President & Chief Counsel – Retail Retirement, Corporate Compensation & Benefits, General Counsel’s Organization, Ameriprise Financial
  • Scott Puritz, Managing Director, Rebalance IRA
  • Ron Kruszewski, Chairman and CEO, Stifel Financial Corp.

Key Points

  • Seys argued in favor of an adaptable “principles-based exemption,” in lieu of the Best Interest Contract (BIC) exemption that required: 1) placing the client’s interests ahead of the advisor’s; 2) charging reasonable fees; and 3) Providing simple, clear, meaningful disclosure. 
  • Puritz claimed that the existing marketplace is “categorically not working,” that investors are generally unaware of fund-level fees, and that Rebalance regularly brings in “Brokerage Refugees” as clients.
  • Kruszewski advocated for a uniform best interest standard developed in conjunction with the SEC and FINRA, and stated that the proposed rule would be harmful to investors, but beneficial to Stifel, as the proposal would force the organization to move all their client accounts to fee-based accounts – which average double the cost of brokerage accounts.

Prepared Statements

In her statement, Seys agreed with the application of a best interest standard to retail accounts, but claimed that the BIC exemption was “not the right vehicle.”  Specifically, she called for a principles-based approach that required advisors to place the client’s interests ahead of their own, charge investors reasonable fees and provide simple, clear and meaningful disclosure.   She argued that unprecedented warranties and penalties for harmless errors were unwarranted, and highlighted the fact that covered accounts would be subject to both private rights of action and excise taxes, while non-covered accounts would only be subject to one.

Puritz discussed his organization’s philosophy and business model at length, and called for the regulators to ensure an “even playing field” for all types of accounts.  He contested that most brokerage accounts charge an average of 2-3% in fees (taking all fees into account), while his organization only charged 0.7% – proving that the fee-based model was viable for smaller investors.  He also stated that it was “ok” if a new regulation did not allow existing business models to serve “modest savers.”

Kruszewski stated that the BIC exemption was so complicated and costly that it could eliminate the commission-based brokerage model.  He further argued that such an occurrence would be damaging to investors, as brokerage accounts charge an average of 50% less compared to advisory accounts within his organization.  Further, he stated that there was no evidence that commission-based account were outperformed by fee-based accounts.  Kruszewski then advocated for a uniform best interest standard that would apply to all accounts and avoid investor confusion.  Finally, Kruszewski stated that the goal must be to encourage as many people to save as much as possible, and that raising fees and limiting choice was not the best way to do so.


Hauser asked Kruszewski if, regardless of the BIC exemption, a framework of the following principles was workable: 1) an upfront commitment (possibly at the transfer of funds if the commitment was retroactive) to act in the investor’s best interests; 2) a commitment to reasonable fees based on the services provide; and 3) make the commitment that is binding and enforceable.

After an ensuing discussion between Kruszewski and Hauser, Kruszewski stated that such an a framework may be workable, but that it would have to rely on an objective definition of reasonable and that he would have to see specific text and requested the DOL to provide a second comment period on a revised rule.  During the discussion, Kruszewski noted that such a proposal would likely fit “on three pages” – in contrast to the current proposal.

Mares inquired into Puritz’s claim that his organization used “endowment style” financial planning, and specifically whether they relied on high volumes of illiquid assets – as most endowments do.  Puritz replied that there is a debate among endowment advisors concerning the efficacy of illiquid assets, and stated that he simply meant that technology now allowed his organization to utilize modern portfolio management techniques (such as asset class diversification and regular rebalancing) for smaller investors.

Piacentini asked the panelists about the NERA report, as well as their own statistical estimates, and what they took into account in the calculation of their numbers, and whether or not they believed averages were an accurate statistic to use in this method.  Kruszewski stated that he believed that averages were the best statistic to examine for this conversation, and that when he spoke of returns he was speaking holistically of all returns, and when he spoke of fees he was referring to Stifel-charged fees.  Puritz stated that his fee numbers of 2-3% and 0.7% where holistic numbers, and evidence that the current marketplace was not working.

A discussion ensued among the panelists on whether existing law offered a level playing field.  Kruszewski noted that Puritz’s organization offered a narrow product range, while Puritz argued that Kruszewski’s organization was not held to the same standards.  Seys countered that, given the jurisdiction of state enforcement actions, the playing field may actually be tilted in Puritz’s favor.

Canary then asked Kruszewski to clarify his statements regarding investor confusion, and asked how, if one client currently has five different accounts with an organization – and each of those accounts carry different broker obligations under the law – will the DOL rule make the situation more confusing.  Kruszewski responded that there are essentially two sets of rules: 34 Act rules and 40 Act rules.  He stated that these sets of obligations currently act harmoniously, but that the DOL proposal would create a third set of hybrid rules, which would place certain 34 Act accounts under some 40 Act obligations.

Canary closed by asking for opinions on the seller’s exemption.  Seys stated that she agreed with previous panelists that the proposal was overbroad, and called for the proposal of a viable, bright line exemption.

Panel 22

  • Lynn Dudley, Senior Vice President of Global Retirement and Compensation Policy, American Benefits Council
  • Christopher Jones, Executive Vice President and Chief Investment Officer, Financial Engines
  • Jeffrey Tarbell, ASA, American Society of Appraisers

 Key Topics

  • Dudley said the new definition of fiduciary is at odds with employers, who claim that the new definition would make tools to help investors, such as education, more difficult to utilize.  She offered several solutions, including clarifying the “casual conversation” exemption, as well as broadening the education provision and extending the transition period. 
  • Jones explained that his company has been acting under the fiduciary standard, and that the DOL taking these measures is extremely beneficial, particularly to investors.  He offered four main points: 1) individuals need unconflicted advice; 2) the rule is workable; 3) there is technology that can be used to educate; and 4) he offered areas where he felt the rule could be strengthened. 
  • Tarbell thanked the DOL for making certain changes to the 2010 proposal, but added that he was still concerned about certain aspects.  His concerns included the fact that appraisers evaluating prices in certain scenarios are still considered fiduciaries under the current proposal.  He supported his argument by claiming his fears are widespread, and also by arguing that appraisers only declare a price, and do not make recommendations on actions. 

Prepared Statements

Dudley began her testimony by applauding the DOL’s efforts, as well as their ability to listen and consider each panelist’s comments.  After hearing from a number of plan sponsors, the overarching response was that the new rule would make it difficult to provide tools for investors, such as education, which would become more expensive to administer.  Instead, they would be forced to utilize generic information, which Dudley deemed as insufficient for the real questions people have.  An example she provided included the usage of call centers, which under the new rule could be considered a fiduciary. 

Further, she discussed a scenario where a human resources employee could be considered a fiduciary for giving a co-worker “advice” on what plan to select.  At the end of her testimony, Dudley offered several solutions to the problems she addressed.  First, she suggested clarifying the “casual conversation” exemption, as well as including a “mutual understanding” provision.  She continued to explain other solutions, such as broadening the education carve out and extending the transition period beyond eight months to allow companies time to comply. 

Jones initially spent time discussing how Financial Engines has been operating under the fiduciary standard for years, and that the DOL’s efforts to make this rule will benefit those receiving the benefits.  He made four main points throughout his testimony, arguing that: 1) individuals need unconflicted advice; 2) the rule is workable; 3) technology is available to get simple advice, regardless of wealth; and 4) he also offered areas where the rule could be strengthened. 

Jones made the initial point that the status quo is no longer good enough, and that most advisors act in their own best interest, including the incorporation of high fees on their investments.  Next, he argued that the new rule is workable for providers, and especially beneficial for investors, which he supported with his experiences at Financial Engines.  He then discussed the numerous resources found in technology available for those who have questions, regardless of wealth.  Lastly, he suggested strengthening the education provision, which he feels may restrict advisors from being able to communicate information about their services effectively, as well as other provisions. 

Tarbell discussed his concern with appraisers being included under the fiduciary definition, although he appreciated the changes made from the 2010 proposal.  He opposed “the carve-out of the carve-out,” referring to the education exemption.  Further, he explained that he opposed efforts by the DOL to treat appraisers as fiduciaries when performing employee stock ownership plan (ESOP) related valuations.  Also, he raised concerns that the DOL came out with two separate policies regarding appraisers. 

Tarbell then explained that the concerns he is expressing are widespread throughout the industry.  He argued that appraisers are not recommending or advising anyone, but rather issuing a value of what something costs – not whether to invest.  He stated that if appraisers are included in the definition of fiduciary, it could give rise to disputes which would require litigation.  He also claimed that there is no evidence to support the idea that including appraisers as fiduciaries will effectively solve any problems.  He does, however, support the idea of creating a separate regulation solely concerning appraisers, and would be willing to discuss in detail the steps in that process. 


Hauser clarified that casual conversations are not covered, and that there must be a recommendation or a call to action.  Dudley responded by requesting that this be clearly written in the rule.  Hauser then asked how to do that, and Dudley agreed to send over some examples.

Mares asked what possible procedures exist to narrow down the options and considerations on the list of retirement plans without crossing the line, with Dudley’s response including the need for guidance on what to do while offering their services. 

Hauser asked Dudley if there was an objection to widening the definition of education.  Dudley said there was no objection to widening it, but requested there be specific examples illustrated in the rule. 

Hauser asked why mutual consideration is needed to initiate the fiduciary standard and what would be considered “mutual consideration.”  Dudley responded by claiming that both parties need to understand that the conversation taking place is about their plans, assets, etc., and that there has to be a clear understanding that there is an individualized recommendation. 

Hauser and Tarbell went through a discussion regarding the need to change the status quo when it comes to appraisers and the fiduciary standard, which resulted in them agreeing to disagree.  Hauser mentioned there might be a separate piece of regulation specifically for appraisers, on which the ASA would be welcome to assist.

Panel 23

  • John Grady, Legislative and Regulatory Committee Chair, Alternative & Direct Investment Securities Association; Chief Strategy and Risk Officer, RCS Capital
  • Mark Goldberg, Chairman Emeritus, Investment Program Association; Chairman, Carey Financial, LLC
  • Stuart Kaswell, Executive Vice President and Managing Director, Managed Funds Association

Key Points

  • Grady expressed concern that the DOL proposal is based on the concept of conflicted advice, saying that emphasizing compensation and conflict tends to minimize other positive aspects of advisor relationships and ignores regulation from FINRA and the SEC.
  • Goldberg was critical of the BIC exemption, saying that it deviates from a principles-based approach by using a legal list of assets that fit under the definition of “common investments.”  He said the term common is too vague, and that the use of lists could stifle innovation because new products cannot be considered common.

    Kaswell warned that the proposal, absent changes, could impair the ability of sophisticated plan investors to invest in hedge funds. He stressed that securities laws already protect and would continue to protect plan investors from inaccurate or misleading information.

Prepared Statements

Grady expressed concern that the DOL proposal is based on the concept of conflicted advice, saying that emphasizing compensation and conflict tends to minimize other positive aspects of advisor relationships and ignores regulation from FINRA and the SEC.  On the BIC exemption, Grady said it would create a problem of differential treatment of retirement accounts from other types of accounts.

Goldberg was critical of the BIC exemption, saying that it deviates from a principles-based approach by using a legal list of assets that fit under the definition of “common investments.”  He said the term common is too vague, and that the use of lists could stifle innovation because new products cannot be considered common.  Further, he said if the DOL does choose to keep the legal list, it must be as inclusive as possible and include REITs and BDCs, which benefit investors by providing more choice and diversification.

Kaswell warned that the proposal, absent changes, could impair the ability of sophisticated plan investors to invest in hedge funds.  He recommended that the DOL revise its proposal to permit fund managers to communicate directly with plan investors and to respond to questions without being considered fiduciaries.  He stressed that securities laws already protect and would continue to protect plan investors from inaccurate or misleading information.


Mares asked Goldberg to explain the structure of a typical non-traded REIT and how investors get visibility into its assets.  Goldberg explained that REITS are publically-registered vehicles that conform to regulations from the SEC, FINRA, and state laws, so they provide very robust disclosures similar to any other SEC-registered products.

Mares asked what conditions should be considered for including REITs in a portfolio.  Goldberg noted that concentration limits generally limit REITs to well under ten percent of a portfolio.

Canary asked about the applicability of the seller’s exemption to hedge funds.  Kaswell stressed that hedge funds should not be considered fiduciaries and explained that advisors and investors make their decisions based on their own evaluations.

Canary asked what types of investors can invest in hedge funds.  Kaswell stated that individual investors, even within a plan, have to meet thresholds to invest in hedge funds. He explained that investor protections are in place, so that only sophisticated investors as judged by the SEC can invest, and that these standards screen out the average retail investor.

Panel 24

  • Scott Robinson, President-Elect, Appraisal Institute
  • Michael Nicholas, CEO, Bond Dealers of America
  • Mike Gerber, EVP, Franklin Square Capital Partners

Key Points

  • Robinson focused on the way the proposed rule would affect the appraisal industry. He argued that the regulation would make appraisal firms that buy/sell fiduciaries.
  • Nicholas argued that the proposal would harm investor access to plans and advice and the DOL should conduct the new regulation through a "harmonized approach with different agencies."
  • Gerber's main point was that the DOL should include traded and non-traded BDC's on the list of exemptions.

Prepared Statements

Robinson focused on the way the proposed rule would affect the appraisal industry.  He argued that the regulation will make appraisal firms that buy/sell as fiduciary.  He said that the appraisers could not have a conflict of interest, and this regulation would unfairly impact appraisers.  Robinson continued that the appraisal industry is already the most highly regulated industry and there is no need for more regulations to protect investors.  In conclusion, Robinson asked that the department provide clear definitions and provide exemption for appraisals for specific transactions. 

Nicholas argued that the proposal would harm investor access to plans and advice and the DOL should conduct the new regulation through a "harmonized approach with different agencies."  Additionally, he stated that the principal trading restriction should be taken out because it hurts investor choice. 

Gerber's main point was that the DOL should include traded and non-traded BDC's on the list of exemptions.  He argued that these investments are some of the most highly regulated and transparent investments that someone could chose.  Gerber also stated that these types of investments meat the DOL's requirements in the preamble of the regulation


Campagna asked Robinson about the difference between a fairness opinion and an appraisal.  Robinson stated that the fairness opinion takes into account more than market value. 

Cosby asked Robinson about how the proposal would increase costs for investors through the increased regulation on appraisals.  Robinson stated that they would have to charge more because there's an increased liability on the appraiser. 

Cosby asked Gerber what his firm's best practices are.  Gerber stated that they use third party valuation, mark every investment every quarter, and do not over-distribute investments.  Cosby stated he asked this because it helps them in final rule with disclosure practices. 

Panel 25

  • Gary Katz, Chief Executive Officer, International Securities Exchange, U.S. Securities Market Coalition
  • Ida Byrd-Hill, Chief Executive Officer, Weyn LLC
  • Don Trone, Founder and Chief Executive Officer, 3et

Key Points

  • Katz noted that it is important for brokerage companies to teach investors how to use options without being deemed a fiduciary and said that determining the qualification level of an options investor should not cause a broker to become a fiduciary.
  • Hill suggested that the DOL create a category of “financial wellness advisors” who would not operate on commissions or a yearly fee.  She suggested that the DOL expand the educational options in its proposal to include new types of education and financial wellness advisors.
  • Trone suggested that the DOL set forth a checklist to outline practices that a fiduciary must demonstrate to be complia

Prepared Statements

Katz noted that listed options are not included as an asset in the BIC exemption and suggested that they should be included, explaining that 165 million options contracts are traded in IRAs.  He said options require a level of education and that it is important for brokerage companies to teach investors how to use these products without being deemed a fiduciary.  He also said that determining the qualification level of an options investor should not cause a broker to become a fiduciary.

Hill said the focus should be on what happens to Main Street customers, saying that the advice given to less educated investors is not good.  She suggested that the DOL create a category of “financial wellness advisors” who would not operate on commissions or a yearly fee and that this model could promote education through effective mechanisms like video game learning.  Hill suggested that the DOL expand educational options in its proposal to include new types of education and financial wellness advisors

Trone expressed concern that the DOL’s proposal creates punitive rules that will make it easier for dishonest advisors to “hide behind the complexity” of the rules and make it harder for honest advisors to provide services.  He said some important practices that the DOL should focus on include: controlling for fees and expenses; defining due diligence for investment options; and providing plan sponsors with performance reports.  Trone added that the DOL needs to clarify if it is proposing additional practices for the industry to follow or if a fiduciary only has to demonstrate compliance.  He suggested that the DOL set a checklist to outline practices that a fiduciary must demonstrate to be compliant.


Mares asked about the differences in qualification levels for options investing.  Katz said that limitations on investment strategies are done at the firm level and that increases in qualification represent greater experience and knowledge of the investor.  He also noted that education and qualification are independent as qualification is not given until an account is opened.

Lloyd asked if customers need a margin account to trade options, to which Katz said margin account requirements vary by firm.  Lloyd then asked if brokers provide advice in self-directed accounts.  Katz said there is a clearly defined process to determine if a broker is a fiduciary or not, noting that education without a recommendation should not qualify an advisor as a fiduciary

Campagna asked if education is done one-on-one with a broker.  Katz said education methods vary, explaining it can be done online and that there is “no one formula” to educate a customer

Cosby asked if the compensation model for options is the same as the broker model.  Katz said that the compensation model for listed options is the same as that for stocks.  Cosby then asked if the education concept in the proposal is sufficient for the financial wellness advisor concept.  Hill said it is not sufficient because it is too narrow and required information cannot be fully explained in one or two sessions.



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