[House Hearing, 114 Congress]
[From the U.S. Government Publishing Office]
PRINCIPLES FOR ENSURING RETIREMENT
ADVICE SERVES THE BEST INTERESTS OF
WORKING FAMILIES AND RETIREES
=======================================================================
HEARING
BEFORE THE
SUBCOMMITTEE ON HEALTH,
EMPLOYMENT, LABOR, AND PENSIONS
COMMITTEE ON EDUCATION
AND THE WORKFORCE
U.S. House of Representatives
ONE HUNDRED FOURTEENTH CONGRESS
FIRST SESSION
__________
HEARING HELD IN WASHINGTON, DC, DECEMBER 2, 2015
__________
Serial No. 114-35
__________
Printed for the use of the Committee on Education and the Workforce
[GRAPHIC NOT AVAILABLE IN TIFF FORMAT]
Available via the World Wide Web:
www.gpo.gov/fdsys/browse/
committee.action?chamber=house&committee=education
or
Committee address: http://edworkforce.house.gov
____________
U.S. GOVERNMENT PUBLISHING OFFICE
97-711 PDF WASHINGTON : 2016
________________________________________________________________________________________
For sale by the Superintendent of Documents, U.S. Government Publishing Office,
http://bookstore.gpo.gov. For more information, contact the GPO Customer Contact Center,
U.S. Government Publishing Office. Phone 202-512-1800, or 866-512-1800 (toll-free).
E-mail, [email protected].
COMMITTEE ON EDUCATION AND THE WORKFORCE
JOHN KLINE, Minnesota, Chairman
Joe Wilson, South Carolina Robert C. ``Bobby'' Scott,
Virginia Foxx, North Carolina Virginia
Duncan Hunter, California Ranking Member
David P. Roe, Tennessee Ruben Hinojosa, Texas
Glenn Thompson, Pennsylvania Susan A. Davis, California
Tim Walberg, Michigan Raul M. Grijalva, Arizona
Matt Salmon, Arizona Joe Courtney, Connecticut
Brett Guthrie, Kentucky Marcia L. Fudge, Ohio
Todd Rokita, Indiana Jared Polis, Colorado
Lou Barletta, Pennsylvania Gregorio Kilili Camacho Sablan,
Joseph J. Heck, Nevada Northern Mariana Islands
Luke Messer, Indiana Frederica S. Wilson, Florida
Bradley Byrne, Alabama Suzanne Bonamici, Oregon
David Brat, Virginia Mark Pocan, Wisconsin
Buddy Carter, Georgia Mark Takano, California
Michael D. Bishop, Michigan Hakeem S. Jeffries, New York
Glenn Grothman, Wisconsin Katherine M. Clark, Massachusetts
Steve Russell, Oklahoma Alma S. Adams, North Carolina
Carlos Curbelo, Florida Mark DeSaulnier, California
Elise Stefanik, New York
Rick Allen, Georgia
Juliane Sullivan, Staff Director
Denise Forte, Minority Staff Director
------
SUBCOMMITTEE ON HEALTH, EMPLOYMENT, LABOR, AND PENSIONS
DAVID P. ROE, Tennessee, Chairman
Joe Wilson, South Carolina Jared Polis, Colorado,
Virginia Foxx, North Carolina Ranking Member
Tim Walberg, Michigan Joe Courtney, Connecticut
Matt Salmon, Arizona Mark Pocan, Wisconsin
Brett Guthrie, Kentucky Ruben Hinojosa, Texas
Lou Barletta, Pennsylvania Gregorio Kilili Camacho Sablan,
Joseph J. Heck, Nevada Northern Mariana Islands
Luke Messer, Indiana Frederica S. Wilson, Florida
Bradley Byrne, Alabama Suzanne Bonamici, Oregon
Buddy Carter, Georgia Mark Takano, California
Glenn Grothman, Wisconsin Hakeem S. Jeffries, New York
Rick Allen, Georgia
C O N T E N T S
----------
Page
Hearing held on December 2, 2015................................. 1
Statement of Members:
Polis, Hon. Jared, Ranking Member, Subcommittee on Health,
Employment, Labor, and Pensions............................ 4
Prepared statement of.................................... 6
Roe, Hon. David P., Chairman, Subcommittee on Health,
Employment, Labor, and Pensions............................ 1
Prepared statement of.................................... 3
Statement of Witnesses:
Campbell, Mr. Bradford P., Esq., Counsel, Drinker Biddle and
Realth, LLP, Washington, DC................................ 8
Prepared statement of.................................... 11
Doba, Ms. Rachel A., President, DB Engineering, LLC,
Indianapolis, IN........................................... 18
Prepared statement of.................................... 20
Mohrman-Gillis, Ms. Marilyn, Managing Director, Public Policy
and Communications, Certified Financial Planner Board of
Standards, Washington, DC.................................. 27
Prepared statement of.................................... 29
Gaudreau Jr., Mr. Jules O., CHFC, CIC, President, The
Gaudreau Group, Inc., Wilbraham, MA........................ 35
Prepared statement of.................................... 37
Additional Submissions:
Mr. Polis:
Letter from Financial Planning Coalition, to the Employee
Benefits Security Administration....................... 84
Prepared statement of Mohrman-Gillis, Ms. Marilyn, Esq.,
Financial Planning Coalition before the Employee
Benefits Security Administration....................... 125
Prepared statement of Ferrara, Mr. V. Raymond, CFP,
Financial Planning Coalition before the Employee
Benefits Security Administration....................... 127
Letter dated September 29, 2015, from Financial Planning
Coalition.............................................. 129
Letter dated October 26, 2015, from Financial Planning
Coalition.............................................. 130
Letter dated October 29, 2015, from Financial Planning
Coalition.............................................. 131
Letter dated November 16, 2015, from Financial Planning
Coalition.............................................. 133
Letter dated November 16, 2015, from Financial Planning
Coalition.............................................. 135
Dr. Roe:
Bipartrisan House Members Outline Legislative Principles
to Ensure Retirement Advisors Protect Clients' Best
Interest............................................... 138
Prepared statement of American Council of Life Insurers.. 140
Investment News: DOL's fiduciary exemption is not a
workable option for advisors........................... 143
Prepared statement of Financial Services Roundtable...... 147
PRINCIPLES FOR ENSURING RETIREMENT
ADVICE SERVES THE BEST INTERESTS OF
WORKING FAMILIES AND RETIREES
----------
Wednesday, December 2, 2015
U.S. House of Representatives
Committee on Education and the Workforce
Subcommittee on Health, Employment, Labor, and Pensions
Washington, D.C.
----------
The Subcommittee met, pursuant to call, at 10:00 a.m., in
room 2261, Rayburn House Office Building. Hon. David P. Roe
[Chairman of the Subcommittee] presiding.
Present: Representatives Roe, Wilson of South Carolina,
Foxx, Walberg, Guthrie, Heck, Messer, Carter, Grothman, Allen,
Polis, Courtney, Pocan, Hinojosa, Sablan, Wilson of Florida,
Bonamici, and Takano.
Also present: Representatives Kline and Scott.
Staff Present: Andrew Banducci, Workforce Policy Counsel;
Janelle Belland, Coalitions and Members Services Coordinator;
Ed Gilroy, Director of Workforce Policy; Jessica Goodman,
Legislative Assistant; Callie Harman, Legislative Assistant;
Tyler Hernandez, Press Secretary; Nancy Locke, Chief Clerk;
Michelle Neblett, Professional Staff Member; Brian Newell,
Communications Director; Krisann Pearce, General Counsel;
Alissa Strawcutter, Deputy Clerk; Juliane Sullivan, Staff
Director; Olivia Voslow, Staff Assistant; Tylease Alli,
Minority Clerk/Intern and Fellow Coordinator; Denise Forte,
Minority Staff Director; Christine Godinez, Minority Staff
Assistant; Carolyn Hughes, Minority Senior Labor Policy
Advisor; Brian Kennedy, Minority General Counsel; Kevin
McDermott, Minority Senior Labor Policy Advisor; Amy Peake,
Minority Labor Policy Advisor; Saloni Sharma, Minority Press
Assistant, Arika Trim, Minority Press Secretary; and Elizabeth
Watson, Minority Director of Labor Policy.
Chairman Roe. A quorum being present, the Subcommittee on
Health, Employment, Labor, and Pensions will come to order.
Good morning, everyone, and welcome to today's hearing.
Retirement security is something many Americans work hard
to achieve, but doing so can be very challenging. While many
individuals understand the need to plan for retirement, they do
not necessarily know the best way to do so.
That is why many workers rely on financial advisors to help
them build a foundation for a secure retirement, and why too
many others simply retire without the resources they need to
remain financially stable.
Men and women who have worked hard all their lives want to
enjoy their retirement, spending time with their grandchildren,
taking up a new hobby, or finally getting through the to-do
list they did not have the time to tackle before, like my
garage. They do not want to worry about making ends meet or
leaving their loved ones with a significant financial burden.
As policy makers, we should be doing everything we can to
ensure workers are able to effectively plan for life after
leaving the workforce. Unfortunately, we are here today because
a proposal from the Department of Labor is threatening to make
it harder for workers to do just that.
The administration has said this proposed rule, known as
the ``fiduciary rule,'' will require retirement advisors to put
the best interests of their clients above their own financial
interests. That, of course, is an admirable goal and one we
agree is worth pursuing.
Financial advisors should act in their clients' best
interests, and Republicans have long said we are open to
modernizing current rules in a way that provides more
protections to those seeking retirement advice.
However, as witnesses explained at a committee hearing this
summer, the Department's rule as proposed will impose on
financial advisors a host of costly new mandates and burdensome
regulations that will have far reaching consequences for those
most in need of assistance, and as with most well intended Big
Government schemes, it is the people who need help who are hurt
the most.
Many low- and middle-income families will lose access to
some of the most basic retirement advice. These individuals,
who already have fewer resources to invest, will no longer be
able to seek guidance from trusted financial advisors and could
be forced to pay exorbitant fees or fend for themselves online.
Additionally, small business owners will be denied
assistance in choosing the best investment options for their
employees, leaving many small businesses unable to offer any
retirement plan at all.
The proposal is so extreme and unworkable that it is
drawing serious concerns from both sides of the aisle. A
significant number of Democratic policy makers in both the
House and the Senate have written to the Department about the
proposed rule, calling its anticipated effects ``troubling''
and urging the Department to ``seek a balanced approach.''
This committee sent a letter with a similar request asking
for the withdrawal of the proposal and encouraging the
Department to work with Congress on a more responsible
approach.
Now if this all sounds familiar, there is a good reason. We
have been through it before. Nearly five years ago, the
Department pursued a similar regulatory proposal, and similar
bipartisan concerns were raised.
The difference is the last time around, the Department
listened to those concerns, withdrew its proposal, and went
back to the drawing board to develop a new, albeit similarly
flawed, rule. This time, the Department seems determined to
ignore legitimate bipartisan concerns and force its misguided
rule on the American people.
That is why I am working along with a number of my
Republican and Democrat colleagues on this committee and the
Ways and Means Committee to develop a legislative solution that
will accomplish what the Department of Labor has failed to do.
Our proposal will strengthen retirement security, but
unlike the Department's approach, it will do so without hurting
working families and small businesses.
To guide this effort, we developed a set of important
principles that our bipartisan solution will reflect, such as
protecting access to the retirement advice workers, retirees
and small business owners need, and ensuring retirement
advisors serve their clients' best interests.
Let me repeat that, their clients' best interests. We
believe that financial advisors should look out for their
clients' best interests, but we also believe the rules
governing financial advice should do no harm to those saving
for retirement.
Today's hearing is an opportunity to further explore these
principles, to hear what our witnesses believe a workable best
interest standard looks like, and to continue to work to
introduce a responsible legislative proposal that will help
individuals save for their retirement.
I look forward to our discussion and to the work ahead.
With that, I will now recognize the Ranking Member of the
Subcommittee, Congressman Polis, for his opening remarks.
[The information follows:]
Prepared Statement of Hon. David P. Roe, Chairman, Subcommittee on
Health, Employment, Labor, and Pensions
Retirement security is something many Americans work hard to
achieve, but doing so can be very challenging. While many individuals
understand the need to plan for retirement, they don't necessarily know
the best way to do so. That's why many workers rely on financial
advisors to help them build a foundation for a secure retirement. And
why too many others simply retire without the resources they need to
remain financially stable.
Men and women who have worked hard all their lives want to enjoy
their retirement - spending time with their grandchildren, taking up a
new hobby, or finally getting through the to-do list they didn't have
the time to tackle before. They don't want to worry about making ends
meet or leaving their loved ones with a significant financial burden.
As policymakers, we should be doing everything we can to ensure
workers are able to effectively plan for life after leaving the
workforce. Unfortunately, we're here today because a proposal from the
Department of Labor is threatening to make it harder for workers to do
that.
The administration has said this proposed rule - known as the
``fiduciary rule'' - will require retirement advisors to put the best
interests of their clients above their own financial interests. That,
of course, is an admirable goal and one we agree is worth pursuing.
Financial advisors should act in their clients' best interests, and
Republicans have long said we are open to modernizing current rules in
a way that provides more protections to those seeking retirement
advice.
However, as witnesses explained at a committee hearing this summer,
the department's rule - as proposed - will impose on financial advisors
a host of costly new mandates and burdensome regulations that will have
far reaching consequences for those most in need of assistance. And as
with most well-intended Big Government schemes, it's the people who
need help who are hurt the most.
Many low- and middle-income families will lose access to some of
the most basic retirement advice. These individuals - who already have
fewer resources to invest - will no longer be able to seek guidance
from trusted financial advisors and could be forced to pay exorbitant
fees or fend for themselves online. Additionally, small business owners
will be denied assistance in choosing the best investment options for
their employees, leaving many small businesses unable to offer any
retirement plan at all.
The proposal is so extreme and unworkable that it is drawing
serious concerns from both sides of the aisle. A significant number of
Democratic policymakers in both the House and the Senate have written
to the department about the proposed rule, calling its anticipated
effects ``troubling'' and urging the department to ``seek a balanced
approach.'' This committee sent a letter with a similar request, asking
for the withdrawal of the proposal and encouraging the department to
work with Congress on a more responsible approach.
Now, if this all sounds familiar, there's a good reason: We've been
through it before. Nearly five years ago, the department pursued a
similar regulatory proposal, and similar bipartisan concerns were
raised. The difference is that last time around, the department
listened to those concerns, withdrew its proposal, and went back to the
drawing board to develop a new - albeit similarly flawed - rule. This
time, the department seems determined to ignore legitimate bipartisan
concerns and force its misguided rule on the American people.
That's why I am working - along with a number of my Republican and
Democrat colleagues on this committee and the Ways and Means Committee
- to develop a legislative solution that will accomplish what the
Department of Labor has failed to. Our proposal will strengthen
retirement security, but, unlike the department's approach - it will do
so without hurting working families and small businesses.
To guide this effort, we developed a set of important principles
that our bipartisan solution will reflect, such as protecting access to
the retirement advice workers, retirees, and small business owners need
and ensuring retirement advisors serve their clients' best interests.
Let me repeat that: their clients' best interests. We believe that
financial advisors should look out for their clients' best interest,
but we also believe the rules governing financial advice should do no
harm to those saving for retirement.
Today's hearing is an opportunity to further explore these
principles, to hear what our witnesses believe a workable best interest
standard looks like, and to continue our work to introduce a
responsible legislative proposal that will help individuals save for
their retirement. I look forward to our discussion and to the work
ahead.
With that, I will now recognize the Ranking Member of the
subcommittee, Congressman Polis, for his opening remarks.
______
Mr. Polis. Thank you, Mr. Chairman, for yielding, and I
want to thank our witnesses for providing us their time and
expertise during this busy holiday season.
Today we are convened again to discuss a very important
rulemaking process at the Department of Labor that would change
the way financial advisors operate, and potentially the advice
that savers receive.
Specifically, we are discussing the principles that would
protect savers from conflicted advice and allow good advisors
to continue to work in their communities on behalf of their
clients.
As we know, the reason we are talking about this issue and
why it is so important is the retirement savings gap for
Americans is a staggering $14 trillion, with one in five
Americans who are approaching retirement age having zero in
their private retirement savings.
This is obviously a problem and it must be addressed in a
number of ways. This process around financial advice is just
one of those aspects to how our nation needs to deal with the
retirement savings gap.
The Department of Labor has been engaged in efforts to
redefine the circumstances under which an individual is acting
as a ``fiduciary'' when providing investment advice and
services to retail investors.
As we all know the history, the Department of Labor
retracted a first version of this rule several years ago. They
released a new version of the rule earlier this year, and they
have begun getting input from a broad spectrum of stakeholders
through an extended comment period. I again want to thank the
Department for extending the initial comment period.
From that first version of the rule to today, I and many of
my colleagues have been following this issue in detail, because
it is so important. I have heard from many of my constituents
and I have engaged with the Department of Labor and
stakeholders through several letters.
As I am sure everyone is aware, the Department of Labor
recently closed its comment period during the rulemaking
process.
I believe that based on what I have heard, the Department
of Labor and Secretary Perez have worked very hard to reach out
to stakeholders, and I am optimistic that they will make the
changes necessary to create a good rule. However, in order to
make sure this happens, I think it is important to include
expert stakeholders at every opportunity.
I believe that transparency and an ongoing stakeholder
process are vital to the success of this rule for savers and
for financial advisors. That is why I along with about 100 of
my Democratic colleagues submitted a letter laying out our
remaining concerns with the drafted rule. We hope that those
are addressed in the final rule.
I recently followed up with a letter signed by 47 Democrats
that urged Secretary Perez to continue the transparency and
outreach to Congress and stakeholders through an additional
comment period as changes are made to the rule, as long as the
timeline remains consistent with being able to finalize these
rules under the presidency of Barack Obama.
The enormous amount of feedback and the sheer importance of
this rule is why I think an additional comment period could be
helpful, to help inform a better rulemaking process.
A comment period that is reasonable and constructive would
help a better rule emerge, and it would give us a detailed look
at what DOL is planning to make with regard to the changes. We
are certainly hopeful that DOL will address the issues that
have been raised by me and my colleagues, but obviously we will
only know when the rule emerges.
In fact, I think as a best practice, all agencies should
have the flexibility to utilize the rulemaking system to allow
for additional comment periods. Often times, an additional
comment period after a second draft of the rule can be more
helpful than simply extending the initial comment period,
because at least we see where the agency is going with regard
to their thought process, and it can remove issues from the
table and allow stakeholders to focus on remaining issues.
DOL must take into account the high number of outstanding
questions and requests for comments that are proposed in the
rule.
To date, there have been multiple letters requesting
changes to the proposed rule from members of both parties in
Congress and more than 3,500 public comments. That is a very
high number for something that sounds as obscure as a fiduciary
rule.
Of course, the amount of public interest is a direct result
of the economic interest of why it is so important for savers
on this issue.
As was shown by my recent vote against H.R. 1090, the so-
called Retail Investor Protection Act, which would have
effectively killed any rule from moving forward, me and most of
my Democratic colleagues are not opposed to a rule being
implemented. In fact, very supportive of the right rule being
implemented. It needs to be done right, address the legitimate
concerns of stakeholders, and meet its intended goal.
Helping Americans save for retirement should not be a
partisan issue. Whether you are a Democrat or Republican, we
are all going to need to retire someday, and we all believe it
is essential for individuals to not receive conflicted advice,
but we also want to make sure they are still able to receive
quality advice.
I think we agree on the intent and spirit of the principles
before us, but because they are broad, of course, we are going
to have questions about the specific legislation, that I
understand might come out of these principles.
Legislation must accomplish the goal of a strong,
enforceable, workable regime. The devil is always in the
details, as we are finding both in the rulemaking process and I
am sure we would also find in the process of drafting a bill.
Our goal should not be a product that prevents an
enforceable conflict of interest standard from being
implemented but rather furthers it.
I look forward to hearing from our witnesses and discussing
the various ideas for updating and improving the rule and
legislation around fiduciary responsibility.
I hope this hearing will further an open stakeholder
process which leads to a rule that is in the interest of all
Americans. I yield back.
[The information follows:]
Prepared Statement of Hon. Jared Polis, Ranking Member, Subcommittee on
Health, Employment, Labor, and Pensions
I thank the chairman for yielding to me, and I thank all of our
witnesses for providing us their time and expertise during this busy
holiday season.
Today we are convened again to discuss an important rulemaking at
the Department of Labor that will change the way financial advisors
operate, and potentially the advice savers receive. Specifically, we
are discussing principals that will protect savers from conflicted
advice and allow good advisors to continue to work in our communities.
As we all know the retirement savings gap for allAmericans is far
too high. It is a staggering $14 trillion, with one-in-five Americans
who are approaching retirement age having zero private retirement
savings. There is obviously a problem, and it must be addressed in a
myriad of ways. Access to good, affordable financial advice is one
important part of the picture.
DOL has been engaging in efforts to redefine the circumstances
under which an individual is acting as a ``fiduciary'' when providing
investment advice and services to retail investors for more than five
years.
After the Department of Labor retracted the first version of this
rule several years ago, they released a new version of the rule in
early 2015, and have been getting input from a broad spectrum of
stakeholders through a long comment period. From that first version of
the rule to today I have been following this issue in extreme detail. I
have heard from many of my constituents and have engaged DOL and
stakeholders through numerous letters
And as I'm sure everyone is aware, the Department of Labor recently
closed its comment period during the rulemaking process.
I believe that DOL and Secretary Perez have worked very hard to
reach out to all stakeholders and I am optimistic that he will make the
changes necessary to create a workable rule. However, in order to
ensure this happens the expert stakeholders should be given another
look.
I believe that transparency and an ongoing stakeholder process are
absolutely vital to the success of this rule. That is why I, along with
almost 100 of my Democratic colleagues, submitted a letter laying out
our remaining concerns with the drafted rule. I recently followed that
up with a letter signed by 47 Democrats, which requested Secretary
Perez continue his transparency and outreach to Congress through an
additional comment period and stakeholders as changes are made to the
rule.
The enormous amount of feedback and the sheer importance of this
rule is why I believe an additional comment period, which will not kill
the rule, in order to give a look at the changes DOL is planning to
make to the rule is reasonable and constructive. Nothing is perfect on
the first or second shot, and bringing stakeholders together for
another look can only strengthen the rule. In fact, I believe all
agencies should have the flexibility to utilize the rulemaking system
to allow for additional comment periods. I hope this can serve as a
model for large and complex rule makings moving forward.
DOL must take into account the high number of outstanding
``Questions'' and ``Requests for Comments'' they proposed in the Rule,
as well as the incredible volume of feedback the Rule has received. To
date, there have been multiple letters requesting changes to the
proposed Rule from members of both parties in Congress, as well as more
than 3,500 public comments, and hundreds of thousands of folks signing
their names to petitions. DOL must listen to this feedback, continue to
work with stakeholders and make the rule more streamlined while
protecting investors and workers.
As was shown by my recent vote against the partisan H.R. 1090, the
so-called Retail Investor Protection Act (which would have effectively
killed any rule from moving forward), I am not opposed to a rule being
implemented. I simply believe it needs to be done right, and the best
way for that to happen is to continue the stakeholder process. The near
unanimous opposition from my side of the aisle against H.R. 1090 shows
that while many of us have concerns with the rule, we believe a new
rule needs to be finished and implemented.
Helping Americans save for retirement shouldn't be a partisan
issue. Whether you're a Democrat or a Republican, eventually you're
going to need to retire. We all believe it is essential for individuals
to not receive conflicted advice, but we also need to make sure they're
still able to receive advice; period.
Investors must be able to trust the person advising them about the
money they need to live after retirement. But on the other hand we must
also protect individuals' and small business' access to advice.
Mistakes in investments cost billions of dollars to individuals and the
economy.
I know that everyone involved in this rule, and all the
stakeholders who will be impacted, agree that financial advisors should
use a ``Best-Interest Standard'' and the bi-partisan principals that
are the subject of this hearing show this agreement.
I think we all agree on the intent and the spirit of the principals
before us. However, because they are broad, I have questions about the
specific legislation that I understand will come out the principals.
Legislation must accomplish the goal of a strong, enforceable, but
workable regime. As they always say, the devils are in the details.
Whether it is a rule completed by DOL, or Congressional action, a final
rule must work with the majority of advisors who are acting in good
faith as well as protect savers. Our goal should not be to prevent an
enforceable conflict of interest standard from being implemented.
I look forward to hearing from our witnesses, and discussing the
various ideas for an updated rule.
______
Chairman Roe. I thank the gentleman for yielding. Pursuant
to Committee Rule 7(c), all subcommittee members will be
permitted to submit written statements to be included in the
permanent hearing record, and without objection, the hearing
record will remain open for 14 days to allow statements and
questions for the record, and other extraneous materials
referenced during the hearing to be submitted in the official
hearing record.
It is now my pleasure to introduce our distinguished panel
of witnesses. First, The Honorable Brad Campbell, counsel at
Drinker Biddle & Reath LLP. From 2007 to 2009, he served as
Assistant Secretary of Labor for the Employee Benefits Security
Administration. He specializes in employee benefits and ERISA
Title I issues, including fiduciary conduct and the prohibitive
transaction rules. Welcome, Mr. Campbell.
Ms. Rachel Doba is founder and president of DB Engineering,
headquartered in Indianapolis, Indiana. DB Engineering is a
civil engineering firm that specializes in civil/site, water/
wastewater, and transportation engineering services. Welcome to
Washington.
Ms. Marilyn Mohrman-Gillis is Managing Director of Public
Policy & Communications of the Certified Financial Planner, the
CFP, Board. The CFP Board fosters professional standards in
personal financial planning through its setting and enforcement
of education, examination, experience, ethics, and other
requirements for CFP certifications. Welcome.
Mr. Jules Gaudreau is the president of The Gaudreau Group,
Inc., an insurance and financial services agency founded in
1921 and headquartered in Wilbraham, Massachusetts. Mr.
Gaudreau also serves as president of the National Association
of Insurance and Financial Advisors. Welcome, Mr. Gaudreau.
I will ask our witnesses to stand and raise your right
hands, please.
[Witnesses sworn.]
Chairman Roe. Thank you. Let the record reflect that the
witnesses answered in the affirmative. You may take your seats.
Before I recognize you to provide your testimony, let me
briefly explain our lighting system. You have five minutes to
present your testimony. When you begin, the light in front of
you will turn green. When one minute is left, the light will
turn yellow.
When your time has expired, the light will turn red. At
that point, I will ask you to wrap up your remarks as best as
you are able. I will be fairly strict about that, so try to
wrap up when you get to the five minute mark.
Mr. Campbell, you are recognized for five minutes.
TESTIMONY OF BRADFORD P. CAMPBELL, ESQ., COUNSEL, DRINKER
BIDDLE & REATH, LLP, WASHINGTON, D.C.
Mr. Campbell. Thank you to the chairman and the ranking
member and the other members of the Committee for the
opportunity to testify today regarding the principles that
should guide legislation, strengthening the retirement advice
for ERISA plans, plan participants, and IRA owners.
Before I begin, I would like to indicate that my remarks
today are my own views, not those of my firm or of any client
or my colleagues. I am just here representing myself rather
than a client.
Currently, I am an ERISA attorney in private practice. I
focus, as the chairman indicated, on ERISA fiduciary issues and
prohibited transactions. From 2006 to 2009, I served as the
Assistant Secretary of Labor for Employee Benefits, and head of
the Employee Benefits Security Administration, the agency that
is promulgating the rule at the Department of Labor that we are
discussing.
The bipartisan principles that the chairman and his
colleagues have developed I think are a very important step
forward in the current debate about how to improve retirement
savings advice. I think they offer common sense guidelines that
would form a solid foundation for the development of meaningful
legislation that protects investors while expanding access to
advice.
I also think though that these bipartisan principles
highlight some of the very serious policy and technical
problems with the Department of Labor's flawed regulatory
proposal, that I believe if promulgated as proposed, would in
fact harm the very persons that it is intended to protect.
Unlike the bipartisan principles, I think the DOL proposal
would actually reduce choices, increase costs, increase
frivolous litigation, and therefore reduce the availability of
advice, particularly for small plans and small IRA accounts.
In fact, I think the DOL proposal violates nearly every one
of the bipartisan principles that we are discussing today. The
first is access to quality advice. The bipartisan principles
would protect access to investment advice and education for low
and middle income workers and retirees, and ensure that small
business owners have access to the financial advice and
products they need.
This is something that the Labor Department has actually
quantified for us, the cost of no advice. In 2011, the Labor
Department, in promulgating certain provisions of the Pension
Protection Act, determined that lack of access to advice cost
participants and IRA owners $100 billion every year due to
preventable investment errors, and part of the reason there was
lack of access was due to the very broad ERISA fiduciary and
prohibited transaction rules that prevented access to advisors.
In contrast to the bipartisan principles, rather than
mitigating the negative effects, unfortunately, the DOL
proposal would actually broaden that problem by more broadly
applying those same ERISA fiduciary standards and prohibited
transaction rules, exacerbating the difficulty of getting
advice to workers.
The bipartisan principles would require advisors to act in
the best interest of their clients. By contrast, the DOL
proposal, although it is appropriated to phrase best interest
does not create a new best interest standard. It instead
applies the existing ERISA and fiduciary standards more
broadly, and the level fee requirements and the effect of these
prohibited transaction rules do not take into account the
actual content of the advice. They can in fact actually prevent
an advisor from acting in your best interest.
The DOL proposal would prevent essential activities based
on structural cost differences between products that do not
actually have anything to do with the quality advice.
For example, we can all agree that a rollover for a
participant is in that participant's best interest. There could
be no dissent on that point. Everyone looked at that
transaction and said this makes sense for that participant;
this is in their best interest.
Because an IRA is a retail product that typically has a
higher fee than a 401(k), the advisor to that 401(k) would be
prohibited from doing the rollover, advising the rollover for
that participant because they would receive a higher fee. That
has nothing to do with conflict. It has to do with structural
cost differences. The DOL proposal would nonetheless prevent
that.
The best interest contract exemption, which the DOL has
proposed to address some of those circumstances, unfortunately
does not work as it is proposed. It would apply a large number
conditions and would allow new class action litigation risk
that does not exist currently, and that render that exemption,
as I said, I think, unworkable for many if not most advisors.
The bipartisan principles called for clear, simple, and
relevant disclosures of compensation, investment fees, and any
conflicts.
By contrast, the big exemption in this part of the proposal
has disclosures that are anything but clear and simple. In
fact, they are extremely difficult for anyone to try to parse
through, for advisors to provide, and for participants to
understand.
The bipartisan principles say the law should never deny
people the financial information they need to make informed
decisions. By contrast, the big exemption in the Department's
proposal directly prohibits an advisor from discussing
investments that are not on the Government's approved list of
investable assets, regardless of whether such information is in
the best interest of the participant.
Finally, the bipartisan principles call for policies that
preserve investor choice and consumer access in a way that does
not pick winners and losers. By contrast, the DOL proposal
limits those choices and would definitely result in winners and
losers, not just among financial service providers, but also
with plans and participants.
The DOL proposal would deny small plans and individuals
access to the same types of advisors and information available
to large plans.
In closing, I am very much encouraged that Congress has
begun to look at this issue, has developed these principles,
and I think Congress in fact is the proper institution to
address these concerns and to meld the proper changes into the
broader framework of financial regulation rather than one
agency with a narrow focus on one body of law.
Thank you very much, and I look forward to your questions.
[The testimony of Mr. Campbell follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chairman Roe. Thank you, Mr. Campbell. Ms. Doba, you are
recognized for five minutes.
TESTIMONY OF RACHEL A. DOBA, PRESIDENT, DB ENGINEERING, LLC,
INDIANAPOLIS, INDIANA
Ms. Doba. Thank you, Chairman Roe, Ranking Member Polis,
and members of the subcommittee for the opportunity to testify
today.
I am Rachel Doba, president of DB Engineering. I am here
representing the U.S. Chamber of Commerce, and I also sit on
its Small Business Council.
At the outset, I would like to express our strong support
for the bipartisan principles discussed to date to ensure that
retirement advice serves the best interests of working
families, retirees, and small businesses throughout the
country.
I would like to extend a special thank you to Chairman Roe
for his work on these principles and ongoing commitment to
retirement security.
DB Engineering is a civil engineering firm that I founded
in 2008. I had my first full-time employee in 2010, and set up
a 401(k) plan a year later. I currently have 15 employees, and
a 100 percent plan participation rate. The plan has a
discretionary match, but beginning 2016, I am moving to a safe
harbor plan, which guarantees a contribution of 3 percent of
employee compensation and will allow me to provide profit
sharing contributions.
Attracting good talent is important for service oriented
businesses like mine; one way that we are able to compete is by
offering employee benefits, including a retirement savings
plan. Retirement security is not just a recruitment tool it is
a personal priority.
In order to start my business in 2008, I cashed out my
401(k) account at my former employer to get the needed startup
capital. In addition to taking a 10 percent penalty and income
tax hit, this withdrawal occurred in the midst of the 2008
financial crisis. I withdrew my savings at the worst possible
time.
Had I consulted a financial advisor, I likely would have
left as much of the funds as possible in my 401(k) or rolled
over to an IRA. That is why the principle stating that public
policy should never deny individuals the financial information
they need to make informed decisions is so critical.
I have worked with my advisor since 2011. He is a critical
part of my team. I trust him to help me with implementing and
maintaining my retirement plan, and my employees trust him to
provide educational materials that will help them make sound
financial decisions.
I am convinced that without our financial advisor, most of
my employees would not contribute to the 401(k) plan and would
not receive the benefit of matching contributions. That is why
another principle stating public policies must protect access
to investment advice and education for low- and middle-income
workers and retirees is also critical.
While all of the principles being discussed today are
important, I want to particularly highlight one of them: small
business owners should have access to the financial advice and
products they need to establish and maintain retirement plans
and help workers plan for retirement.
As a small business owner, I absolutely agree. Limiting
options reduces competition, which drives up costs for my small
business and passes on costs to employees and me as
participants in the plan.
Turning to the Department of Labor's proposed rule, the
Chamber has submitted a comment letter outlining the many ways
the rule is unworkable. Today, I would like to highlight three
issues that will have a particularly negative impact on small
business plans.
First, the seller's carve-out discriminates against small
businesses and will decrease access to much needed guidance.
Under the proposal, there is a carve-out for advisors that
are selling or marketing materials known as the seller's carve-
out that does not apply to small businesses. The DOL seems to
believe that small business owners, such as me, are not as
sophisticated as the large businesses and need additional
protections.
I know when I am being sold a product. Otherwise, I would
not be able to run a successful business.
Second, the changes to the education carve-out will
restrict access to investment education for both small business
owners and their employees. My employees value the investment
education provided to them, specifically providing investment
recommendations in various asset classes. This allows them to
make informed investment decisions. Many of my employees might
not invest in the plan at all if the company had not provided
this benefit.
By disallowing any party to make the link between asset
classes and specific investment options, the DOL is forcing
plan participants to figure out how to invest their own
retirement savings and risk making poor decisions, like I did.
Third, the best interest contract exemption will increase
the cost of services to small businesses and possibly eliminate
access.
There is a question on whether advisors to small business
plans are able to use the BIC exemption, but, even assuming
they are, there are certain to be additional costs associated
with these changes. As a business owner who allows on outside
professionals to manage my plan, any additional costs imposed
by the regulations will be passed on to me.
In fact, this directly contradicts the bipartisan principle
of not choosing winners and losers when small businesses will
either not be able to use the exemption or will pay more to do
so.
In conclusion, I am very concerned that the DOL proposal
will not achieve its goal of better protecting workers and
retirees, but will instead make it harder for small business
employers and employees to access financial advice and to
increase retirement savings.
Thank you for the opportunity to testify before you today,
and I look forward to any questions you may have.
[The statement of Ms. Doba follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chairman Roe. Thank you, Ms. Doba. Ms. Mohrman-Gillis, you
are recognized for five minutes.
TESTIMONY OF MARILYN MOHRMAN-GILLIS, MANAGING DIRECTOR, PUBLIC
POLICY & COMMUNICATIONS, CERTIFIED FINANCIAL PLANNER BOARD OF
STANDARDS, WASHINGTON, D.C.
Ms. Mohrman-Gillis. Chairman Roe and Ranking Member Polis,
members of the Subcommittee, thank you for the opportunity to
testify here today.
I am here today on behalf of the Financial Planning
Coalition, which is comprised of the Certified Financial
Planner Board of Standards, the Financial Planning Association,
and the National Association of Personal Financial Advisors.
We believe that the Coalition brings a unique perspective
to the table. Our stakeholders and members have committed by
virtue of their CFP certification or membership codes of
conduct to provide financial planning services under a
fiduciary standard. They provide fiduciary level services under
different business models as investment advisors, as broker-
dealers, and as insurance producers, and across compensation
models, including commission and fee models.
We believe that updating the outdated 40-year-old
definition of ``fiduciary'' under ERISA is essential and a long
overdue reform to protect America's retirement investors. That
is why we support the DOL's re-proposed rule.
We also believe that congressional intervention in this
administrative rulemaking process at this time is not necessary
and would only serve to delay or derail the rule.
For members of Congress who truly want a best interest
standard for retirement savers, allowing the DOL to proceed to
a final rule without intervention is the best way to achieve
that goal.
You have heard much speculation and misinformation about
the potential impact of the rule. We have a different view
based not on speculation but on actual experience with the
fiduciary standard. CFP Board adopted a fiduciary standard in
2007. At that time, many firms and industry organizations made
arguments similar to those being made today about the DOL rule.
They asserted that the CFP Board's fiduciary requirement was
unworkable with their business models, that CFP professionals
and their firms would be forced to relinquish their
certification if required to provide fiduciary services.
Contrary to these predictions, the sky did not fall, just
the opposite. The number of CFP professionals has grown by 30
percent to 73,000 since we put the fiduciary rule in place.
Opponents argue that the rule will eliminate the broker-
dealer business model and force advisors into fee only models
that will be more expensive for consumers.
This is not consistent with the rule as written or with our
experience implementing a fiduciary standard. Advisors do not
need to give up commissions. The best interest contract
exemption is a principle-based business model neutral exemption
that allows advisors to continue to charge commissions and
still comply with the fiduciary standard under ERISA.
To those that say that the BIC exemption requirements are
unworkable, we point to our own code of professional conduct,
which contain requirements that are very similar to the BIC
exemption requirements.
CFP professionals today are operating under these BIC
exemption like requirements for commission based, not just fee
based, business models.
Opponents also argue that advisors who are required to
obligate themselves to act in the best interest of their
clients will be unable to serve middle-class clients. Again,
our experience and research belies this argument.
Today there are thousands of CFP professionals and FPA and
NAPFA across the country who provide fiduciary level services
to every day Americans under commission based business models.
If our experience is any indication, firms and advisors are
more likely to adjust their policies and practices than to
abandon middle-class clients.
In our view, the robust and transparent rulemaking process
in which the DOL has been engaged for the last five years is
working precisely as intended. The DOL has publicly indicated
that it plans to make changes to address issues raised by us
and other stakeholders.
Congressional intervention in this final stage of the
rulemaking process before the DOL has the opportunity to
promulgate a final rule incorporating all of this public input
is unnecessary and would serve to delay or derail the rule.
The legislative principles as proposed by Representatives
Roskam and Neal, as well as their articulated goals, are
laudable. Legislation to achieve these principles and goals is
not necessary. The DOL re-proposed rule already embraces these
goals and is fully consistent with and far exceeds the proposed
principles.
Retirement investors face a perfect storm in today's
financial services marketplace with a regulatory structure that
rewards advisors to recommend products that cause investors to
lose billions of dollars. With ever increasing responsibility
for their own retirement security, retirement investors more
than ever require un-conflicting financial advice that is in
their best interests.
We urge Congress to refrain from legislation and allow the
DOL to promulgate its long overdue and badly needed rule. Thank
you.
[The statement of Ms. Mohrman-Gillis follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chairman Roe. Thank you. Mr. Gaudreau, you are recognized
for five minutes.
TESTIMONY OF JULES O. GAUDREAU, JR., CHFC, CIC, PRESIDENT, THE
GAUDREAU GROUP, INC., WILBRAHAM, MASSACHUSETTS
Mr. Gaudreau. Thank you, Chairman Roe, Ranking Member
Polis, and members of the Subcommittee, and good morning. I am
Jules Gaudreau, president of NAIFA, the National Association of
Insurance and Financial Advisors, and owner of The Gaudreau
Group, a multi-line insurance and financial services firm,
founded in 1921 by my grandfather, and headquartered in
Wilbraham, Massachusetts.
NAIFA members are in every congressional district--I am
sure you have all heard from them--and work primarily with
families and small businesses that would be considered main
street people.
My firm insures over 6,000 families and businesses in 12
states. Like most of our NAIFA members, over 80 percent of our
clients are middle-income Americans with household incomes
below $100,000. Most of my clients started out as new savers
and most likely would not have started systematic retirement
savings without my encouragement and advice.
When we engage businesses in my community, we spend many
hours discussing the importance of secure retirement and the
importance of attracting and retaining employees who wish to
participate in a retirement plan. We then design the plan,
ensuring compliance with qualified plan rules. We educate and
enroll their employees, and we assist in a myriad of
administrative duties, such as preparation of year-end 5500
reports.
I promise that none of these business owners would have
gone through this important process if it began with an invoice
for our services. You see, we only get paid when the job is
done and action is taken by our clients. The result is a plan
available for employees, likely with employer matching, and is
a step in the right direction toward retirement readiness and
security. We also source and service thousands of pre- and
post-retirement individuals with information and advice on
retirement security.
Our disagreement is not with the enhanced standard of care
fiduciary rule, but rather with the details. Almost everybody
agrees that the DOL rule as proposed is fraught with problems.
Over 200 members of Congress have sent letters expressing their
concerns. The DOL received hundreds of thousands of letters.
FINRA has expressed concerns, and most significantly, even the
DOL itself has acknowledged there are many problematic
provisions.
The effort to craft a bipartisan legislative alternative to
the DOL proposal is critically important. The principles upon
which the alternative will be based are exactly right: a
partisan legislative alternative will protect retirement
savers' investment choices, their access to professional advice
and education, and their hard earned savings.
Again, NAIFA applauds and thanks you for your leadership on
this critical issue.
We do not believe that the DOL rule is consistent with the
principles described by Representatives Roskam and Neal, and
the other leaders of this effort, including you, Mr. Chairman.
For example, the DOL favors fee-only arrangements that will
result in less access to education and advice and fewer choices
for many savers who cannot afford such fee-only arrangements.
Advisors in my firm offer and use both fee based models and
commission models, depending upon the specific needs and
desires of our clients.
We are not opposed to fee-only arrangements, but we
strongly believe that preserving consumer choice is critical.
We also believe that the DOL rule is inconsistent with the
principle protecting consumer access to professional advisors.
The DOL has stated consumers can take advantage of technology
in place of personal advisors. We disagree.
My father cannot even order groceries online for delivery,
and I have zero confidence that in the absence of professional
advice that he could learn about asset allocation, make
investment decisions, or figure out how much he can withdraw
without spending his savings too quickly.
It has become clear from DOL public statements that they
intend to rush this rule to meet their objective of having it
final and effective before change in the current
administration. DOL has stated that they do not intend to re-
propose the rule or to open a new comment period before issuing
a final regulation.
For these reasons, among others, we believe it is time for
Congress to act and act now and expeditiously. We do not
believe this is a partisan issue, and we believe the families
and businesses we serve are entitled to access to retirement
education, access to affordable advice, and seamless
implementation of the easily understood rules to assure
retirement savers are relying upon advice in their best
interests.
We are confident bipartisan legislation can achieve the
common goal expressed repeatedly in this committee's earlier
hearing and articulated by Secretary Perez as DOL's North Star.
That being an enforceable best interest standard.
We are not confident that the DOL can revise their
complicated rule without further review and input, a process
they are rejecting.
We are grateful to you for having this hearing and for
working on a sound legislative alternative to DOL's proposed
fiduciary conflict of interest proposal.
Our written testimony included numerous compelling stories
about the importance of financial advisors to middle-income
Americans.
Thank you for allowing us to comment today. We look forward
to your questions.
[The statement of Mr. Gaudreau follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chairman Roe. Thank you, Mr. Gaudreau. I will now yield to
Mr. Wilson from South Carolina for five minutes.
Mr. WILSON of South Carolina. Thank you, Dr. Roe, and thank
you for your bipartisan leadership on this issue addressing a
bipartisan alternative.
Mr. Gaudreau, the National Association of Insurance and
Financial Advisors, NAIFA, has assisted families and businesses
professionally and competently in the midlands of South
Carolina since 1931. Your members are important civic leaders
in our state, and very much appreciated. People know they can
count on them. Thank you, you should be really proud of the
people you work with.
Can you tell us what the impact of the proposed fiduciary
rule will have on your Association's ability to serve your
clients?
Mr. Gaudreau. We believe this is an unworkable standard
that will drive advisors away from the small- and middle-income
investor, and thus, deprive Americans in those markets with
access to qualified financial advice, the very people who need
it the most.
A similar scheme was tried in the United Kingdom, and
despite the comments of the DOL and others who were in favor of
this rule, the reality there is that Parliament in the United
Kingdom is considering what they call a public policy solution
to fix the gap advice over there, because hundreds of thousands
of people in their country are suffering from the lack of
financial advice that we fear this rule would cause in America.
Mr. WILSON of South Carolina. I was really impressed, Ms.
Doba, with your experience and your firm. According to the U.S.
Chamber of Commerce, small business owners through savings and
incentive matched plans, employee's IRA plans, and simplified
employee pension IRA plans provided $472 billion in retirement
savings to over 9 million American households.
However, the largest gap in coverage for retirement savings
is with small businesses. These small business owners and
employees should have a retirement savings plan that works.
How would this Department of Labor proposed increase
problems that small business employees face when seeking
retirement savings advice?
Ms. Doba. I can really only speak from my experience and my
perspective, but I know when I started my company, cashing out
my 401(k) and what have you, and I had worked at another firm
that had a retirement--they did not have a retirement plan
because it was just too difficult or they did not want to deal
with it, so I honestly did not think I would be implementing a
401(k).
Had this rule been in effect at that time, I can guarantee
you that I would not have started a 401(k). As a small business
owner, most people that are looking at starting to provide
benefits, they are dealing with starting a company.
They are putting health insurance plans together, just
trying to make payroll, having added costs put on top of that,
you are already in a cash flow situation, so you have a bunch
of hurdles already to go through, and as a small business,
there is already a stigma attached to it, not providing quality
benefits to our employees. We are constantly battling that.
I just had an employee that I hired a week ago, and he
almost didn't take the interview because his perception was as
a small business, we could not compete with his large company
he was moving from, benefit wise.
Mr. WILSON of South Carolina. Congratulations on your
deserved success. I can see your empathy for the people you
work with, a great team.
Ms. Doba. Thank you.
Mr. WILSON of South Carolina. Secretary Campbell, in your
opinion, how will this proposal change a fiduciary's ability to
give advice to those who need it the most? Will this proposal
have a greater impact on lower- and middle-income individuals
rather than higher income?
Mr. Campbell. Yes, I believe that it will, and I think that
is one of the real problems with this proposal, that it is
going to impose additional litigation risks, additional
compliance costs, and disrupt a lot of the processes that
currently are occurring that provide services to participants
and to IRA owners in a way that is going to result in those
additional costs, which is going to of necessity have to have
advisors charge more to be able to stay where they are.
I think another important thing to understand is when we
talk about a fiduciary standard, ``fiduciary'' is sort of a
catch all word that applies to a lot of different standards.
What the standard DOL is trying to apply here is the ERISA
fiduciary standard, which is quite different than the
securities fiduciary standard that the CFP, for example, is
embracing.
It is a much more restrictive standard, particularly when
you put it with the prohibitive transaction rules, such as the
ability of an advisor to even assist a participant with a
rollover. That is a structural difference in cost, which is
perceived as a conflict by the rule, and therefore, requires
the use of special rules to be able to even do that
transaction.
When you go through all that process, there is a lot more
litigation risk and a lot of more costs associated with it.
Mr. WILSON of South Carolina. Thank you for your insight
and your background at DOL should be very helpful to the
persons currently at DOL. Thank you very much.
Chairman Roe. I thank the gentleman for yielding. Mr.
Polis, you are recognized.
Mr. Polis. Thank you. Ms. Mohrman-Gillis, most financial
advisors currently seek to do what is in the best interest of
their clients, including those certified by your organization.
As is the case in all fields, there are a few bad actors. That
is the reason we have a formal standard in place.
Now, there has been a good deal of discussion that the
financial advisors would stop serving clients under the
Department of Labor rule. As I understand it, the CFP Board and
those certified by the Board already use a conflict of interest
standard.
My question is can you explain why you believe a strong
conflict of interest standard is important to savers, and what
has been the experience of your Board and its advisors with the
fiduciary standard, and how are individuals certified by your
organization going to be impacted if there is a similar rule to
the one proposed by DOL?
Ms. Mohrman-Gillis. Thank you. I appreciate that question
because we have heard a lot of comment about what the impact of
this rule is going to be on small savers, on the middle class,
on small businesses.
We speak not from speculation but we speak with experience
of putting a fiduciary rule in place, of putting requirements
in place that are very similar to the BIC like requirements, to
essentially act in the best interest of the client, have a
written contract, provide disclosures of conflicts of interest,
and mitigate those conflicts of interest.
Our experience has been that it will not prevent advisors
from providing services under commission based business models.
Our advisors, we have CFP professionals, FPA, and NAPFA members
across the country who are providing services either under
commission based business models or for low fees or low assets
under management, not only to middle class clients but others.
One example is Mr. Ray Ferrara. He testified at the DOL
hearing. He is a CFP professional in Florida, chairman and CEO
of ProVise Management. He provides advice to small business
owners, 401(k) plans who collectively have 1,800 participants
with a balance of $50,000 in their average account. He provides
advice on a commission basis and on a fee basis. He provides
advice that is in their best interests.
He testified at the hearing that he will continue to
provide that advice under a DOL rule, and he further testified
that for those who claim they are not able to serve the middle-
class clients under a fiduciary standard, ProVise and scores of
CFP professionals across the country stand ready to fill that
gap.
Mr. Polis. If you can submit that testimony, I can enter it
in our congressional record as well. I would love to see that.
One of the issues that many of us have been concerned about
is the lack of financial literacy. I wanted to give you a
chance as well as Mr. Campbell a chance to address how you see
the rule impacting financial literacy and education, and what
could be improved to ensure that we do not impede financial
literacy and education. You each have about 45 seconds.
Ms. Mohrman-Gillis. Well, first of all, the DOL rule will
not impede the ability of advisors to provide educational
advice--education to their clients. Under the--
Mr. Polis. That is to their clients, that is after they
have signed on, correct?
Ms. Mohrman-Gillis. No, not after they have signed on.
Mr. Polis. Okay. You said ``clients.''
Ms. Mohrman-Gillis. We do not believe that the rule as
written or the rule as we expect the DOL to modify it will
require advisors to essentially shove a contract in the face of
their clients and require them to sign the contract before they
are able to provide them with information--
Mr. Polis. Thank you. For my last 45 seconds of time, I
want to give Mr. Campbell a chance to address many of our
concerns about impacting financial literacy and education in
this rule.
Mr. Campbell. Yes. The rule, while it does still preserve a
rule for education that is not advice, it does restrict and
narrow that from what the current standard is and in a way that
I think is very unhelpful.
For example, if you are providing a participant in a 401(k)
plan a model asset allocation portfolio that says here is what
someone like you would consider by asset class, you know, 40
percent in large cap, et cetera, the DOL proposal would
actually not allow you to then connect the dots and say and in
your plan, those funds are, and that would suddenly become
fiduciary advice.
I think that really undermines the purpose of that
education. I am hopeful the Department will change that, but as
proposed, I think it is very much an imposition and restriction
on the ability to provide useful education.
Mr. Polis. Thank you, and I yield back.
Chairman Roe. I thank the gentleman for yielding. Dr. Foxx,
you are recognized.
Ms. Foxx. Thank you, Chairman Roe, for holding this
hearing. I want to thank the witnesses for being here today.
There may not be another issue before our committee's
jurisdiction that I have heard more about from my constituents
than this one.
It is easy to understand why they are so concerned. Just as
in the Department's first effort several years ago, this rule
is predicated on a belief that Government knows best and
private financial advisors will not act in the best interest of
their clients. I disagree.
Why would my constituents have any confidence that a new
Government driven regime for financial advice will turn out any
better than the implementation of ObamaCare or the
administration of the VA?
Look at what federal control brought to our education
system through No Child Left Behind. We are moving this week to
fix that mistake. It is my hope we will stop this rule before
it becomes yet another mistake in overreach by the Federal
Government.
Finally, I would like to reiterate my support for the
individual financial advisors who would be impacted by this
rule. I know the overwhelming majority of them have always
acted in their clients' best interests, and do not need the
Department of Labor to tell them what to do. If they are bad
actors, let's ensure they face the stiffest appropriate
penalties. We must allow the rest to continue their work,
helping Americans save for their life goals.
My question, Mr. Gaudreau--I am the sponsor of the
legislation to make clear that employees can transfer qualified
money into a simple IRA account, believing that employees who
participate in retirement plans should have choices and
flexibility in moving their funds.
If the DOL rule limits access to professional advisors,
what are some of the poor choices they might make, including
taking taxable distributions subject to early withdrawal
penalties?
Mr. Gaudreau. I think those are two of the biggest
problems. What we find without the access to appropriate
qualified advice, people might rely on friends, their neighbor,
the chef at their local restaurant, the plumber, cousin Billy
or somebody else, to get advice on what they should do with
that rollover.
Of course, there is a lot of chatter and noise in the news
media, a lot of disagreement. If you watch anything on
television any Saturday morning, you will see experts
disagreeing almost entirely on different investment things.
It is very, very important. I think consumers are confused.
They need somebody they trust, somebody in their community that
they can count on to have their best interests and give them
advice.
You mentioned two very particular things, which is people
taking money out of a qualified plan and depending upon the
timing and the constructive receipt, having to pay both a
penalty as well as taxes on those funds. Simple financial
advice could have recommended them to do otherwise.
Ms. Foxx. Thank you very much. Mr. Campbell, what are your
thoughts on the methodology the Department of Labor has used to
calculate its numbers on the purported benefits of this rule,
beyond those macro numbers, do you believe there are any
benefits of the current system that their methodology ignores?
In other words, could this rule reduce the amount
individuals were able to save by retirement through lost
growth, poor risk allocations, or other factors?
Mr. Campbell. I think that is an excellent question because
it goes to one of the key problems, I think, with the proposal.
I mentioned in my opening statement the $100 billion per year
that the Department previously estimated just in 2011, so the
same administration, is estimated lost due to lack of access to
advice. That number somehow has never made its way into this
proposal. They have never put together what they said in 2011
versus what they are saying this year.
Also, in the academic studies they relied on to come up
with the $17 billion, there is a range, but $17 to $40 billion
worth of conflicts, that looked at a very narrow type of
transaction with a particular type of advisor, and did not take
into account virtually anything else that goes on in that
advice relationship.
For example, if I am sitting down with my advisor, one of
the things I am hoping that they are convincing me to do is
save more, and if I can save one percent more than I am now,
that is going to be a massive amount of increase in my
retirement readiness and savings. None of that benefit is
calculated in the DOL economic analysis.
Lastly, I would say the cost that they estimate otherwise
for compliance is laughable. We are obviously helping many
clients at my firm start to comply, think about how to comply,
look at the rule, what would it mean.
They have already incurred much more in legal fees than DOL
thinks they would over the entirety of this process. That is
just the reality of those compliance costs as opposed to DOL's
numbers on what they think it would be.
Ms. Foxx. Thank you very much. I yield back, Mr. Chairman.
Chairman Roe. I thank the gentlelady for yielding, and now
I will yield to the Ranking Member, Mr. Scott, for five
minutes.
Mr. Scott. Thank you, Mr. Chairman. I thank you for
convening this hearing. Ms. Mohrman-Gillis, we know that the
rule has been subject to a very long and deliberate process.
The Secretary has said he is going to make changes based on the
input he has received. What is wrong with waiting until the
rule is actually promulgated?
Ms. Mohrman-Gillis. Thank you for that question. Nothing is
wrong with waiting. In fact, that is what we think should be
done. The DOL has spent over five years working on this rule
with an extensive, robust, open comment period.
The DOL has been very receptive to comments from us and
other stakeholders and has stated publicly that it plans to
refine the rule based upon the comments that it has received
and make changes that will address specifically many of the
issues raised by members on this subcommittee and others in
Congress.
We believe that it is well past time for the DOL, the
agency in charge of actually effectuating Congress' original
intent in 1974, to provide fiduciary level advice to tax
preferred retirement assets, to allow the DOL as the expert
agency to promulgate a final rule, and then take a look at it
and see if you think there are issues or problems with the
rule.
Mr. Scott. You have suggested in your comments that we are
talking about retirement funds. This committee does not have
jurisdiction over normal transactions, commercial transactions,
it is the Securities and Exchange Commission, and another
committee has that.
We are talking about retirement funds. Should there be
different protections for retirement funds than there would be
for other transactions?
Ms. Mohrman-Gillis. Congress in its wisdom in 1974 set
standards and protections for tax preferred retirement funds in
ERISA. That is what this is all about. The DOL is attempting to
update a rule to actually effectuate congressional intent.
Its authority is very different from the authority of the
SEC, and under a completely different set of statutes that
regulate the securities industry.
The DOL is acting within its authority and is acting to
implement Congress' intent to correct what is now a
marketplace--a problem with the marketplace.
Folks are talking about bad actors, and the bottom line is
it is not the advisors necessarily that are the problem. It is
a structural problem in the marketplace where we allow,
specifically allow compensation incentives that allow advisors
to make recommendations and incentivize advisors to make
recommendations that are not in the best interest of the client
but rather in the best interest of the advisor. That is what
needs to be corrected with the DOL rule.
Mr. Scott. Thank you. Mr. Gaudreau, there are some
unscrupulous advisors out there who frankly just rip off their
clients and their business model frankly may not even work if
they were not able to rip off their clients.
What kind of products do you think need to be available for
recommendation that are not in the best interests of the
workers and their pension funds?
Mr. Gaudreau. We certainly do not believe that the rule
should pick winners and losers, Congressman. I guess the short
answer is that there is no right product in every situation for
every client, and there is no wrong product.
Annuities are a very important product if implemented in
the right situation for many, many Americans. Certificates of
Deposit are.
Mr. Scott. The question was what would you recommend that
is not in the best interests of the workers and their pension
funds.
Mr. Gaudreau. I am not sure I understand your question.
Mr. Scott. That is what we are talking about. We are
talking about the responsibility to recognize the best
interests of workers and their pension funds. Some people would
like to recommend things that are not in the best interest of
the workers.
The question is what would you want to recommend that is
not in their best interests? Hopefully, nothing, because you
have their best interests at heart.
Mr. Gaudreau. I cannot think of it. We already believe that
we do engage in the best interests of our clients. We take an
ethics pledge on their behalf. We look at every situation--
Mr. Scott. You want to maintain the best interests of your
clients?
Mr. Gaudreau. That is correct.
Mr. Scott. Good. I yield back.
Chairman Roe. I thank the gentleman for yielding. Mr.
Walberg, you are recognized.
Mr. Walberg. Thank you, Mr. Chairman, and to the panel. It
has come to my attention that in 2014 the Assistant Secretary
of Labor for Employee Benefits Security Administration was
quoted saying this, ``Today, you cannot get Congress to pass a
Mother's Day resolution.''
I do not know if we are that bad. What we have done is we
have shifted--this is his statement--we have shifted from the
way that social change and legal change and financial change is
accomplished through congressional action to two different
avenues for making changes, the main one being regulation.
Mr. Campbell, as a former Assistant Secretary of Labor for
the Employee Benefit Security Administration, am I wrong to
think that Congress is responsible for making policy and the
Department of Labor should return to its proper role as the
interpreter of the law, not a maker of new law and policy?
Mr. Campbell. Well, I certainly agree that the Labor
Department only has the authority that Congress delegates to
it, and I think on this issue, absolutely, Congress is the
proper venue to resolve it, because we have talked about the
different types of regulations, the SEC, the State Insurance
Commissioners, all these different avenues of regulation apply
simultaneously.
When the Department of Labor changes its standard, it can
conflict with those other standards, as this proposal does with
the securities laws. Congress is a much better institution to
holistically look at these issues.
If I might actually point out one other thing about the
Labor Department's proposal. I actually believe they are
exceeding their authority in several respects.
Mr. Walberg. Is that their broader posture today?
Mr. Campbell. They believe they have the authority to put
out the proposal they do. I would argue with that. I think they
are doing things in this proposal they do not have the
authority to do.
For example, Congress affirmatively decided in 1974 when it
created ERISA to apply the ERISA fiduciary standard to plans,
to employee benefit plans. The idea being I am a participant in
the plan, you are making decisions for me, fiduciary of this
plan, therefore, you must be held accountable for those because
I do not have input into it.
Congress did not apply that standard to IRAs. IRAs do not
have a fiduciary standard applicable under the law. That was an
affirmative determination Congress made, I believe, because I
do control my IRA. This ERISA fiduciary standard based on
protecting me under trust law does not apply to a situation
where I am actually making my own choices.
DOL is using that lack of fiduciary authority to justify
applying fiduciary authority that Congress expressly declined
to apply. I think that is one example of where this authority
is being exceeded.
Mr. Walberg. Thank you. Mr. Gaudreau, Secretary Perez has
said in testimony before this committee that so-called--his
term--``robo advisors'' could be used by some individuals as a
primary source of advice instead of face to face interactions
with advisors.''
Do you share this view that online tools can replace face
to face interactions?
Mr. Gaudreau. I think for a small segment of the
marketplace, who are more sophisticated perhaps and may be
accustomed to making purchases of financial products over the
Internet, it might work. We believe that the choice to have
that sort of an arrangement or to deal with the professional
financial advisor, another human being, should be available to
the American consumer.
People tend to get information on the Internet. It is
usually where they start. They usually finish by making their
decision based upon the financial advice of another human being
in a face-to-face relationship based upon rapport and trust.
Mr. Walberg. Using that or expanding upon that, going back
to the stressful market events like the August 2015 stock
market sell off, what would be a better approach that you would
recommend to your clients in handling this?
Mr. Gaudreau. We help walk our customers home. We hold
their hands through those turbulent weeks and months when the
market is going up and down and they are unsure what to do.
A few years ago, everybody thought they should sell Apple
stock. Now, everybody thinks they might buy Apple stock.
The fact is the consumer left unassisted often buys high
and sells low. By holding their hand through this process, by
being there with them, understanding who they are, where they
live, what they do, and what is important to them and their
family, we are able to appropriately advise them.
Mr. Walberg. Especially those, I would assume, that do not
necessarily have the income and investment capability of those
more astute people that can buy and can use different
approaches--this would block them out.
Mr. Gaudreau. Precisely. The problem with America is not
that there is too much advice. The problem is that there are
not enough of our fellow Americans saving enough to provide a
satisfactory, stable, and secure retirement for themselves. We
need more people advising more Americans. Anything that we do
that deters that process is a mistake.
Mr. Walberg. Thank you. My time has expired. Thank you.
Chairman Roe. I thank the gentleman for yielding. Mr.
Pocan, you are recognized.
Mr. Pocan. Sure. Thank you, Mr. Chairman, and thank you to
our panel. I guess I come at this in a little bit of an unique
perspective in that I do not think, like some, this is going to
bring financial ruin for the entire population of the planet.
At the same time, I do not think the proposed rule as presented
will accomplish what it aims to without having some negative
consequences.
I think, Mr. Gaudreau, you said about the enhanced standard
of conduct is generally people support it, it is the details we
are concerned about.
Ms. Mohrman-Gillis, you presented at another panel, and you
were very impressive and I appreciate the comments you had to
say, specifically about some of the tweaks. I guess that is the
first question I would like to ask you.
Some of the technical issues, like timing of signing of
contracts and the details of disclosure requirements. Just in
about 60 seconds, what are some of the recommendations you have
for the Department of Labor that they should tweak from what we
saw before they present their final rule?
Ms. Mohrman-Gillis. Thank you. We made quite a number of
recommendations to the Department of Labor to make tweaks, to
make the rule more operational across business models,
including the contract issue, for example.
We suggested to the Department of Labor that in every
single financial services relationship there is some sort of
contract that the client has to sign, an account opening
agreement. At that point in time, the client can easily sign
the best interest contract exemption agreement basically where
the advisor obligates themselves to provide advice in the best
interest.
We suggested that any advice that may have been provided
prior to that time that might have been a recommendation versus
education should be covered retroactively by the best interest
contract exemption.
We suggested streamlining some of the disclosure
requirements, some of the reporting requirements. We suggested
adjusting the time frame in terms of the enforcement
obligations under the rule to make it easier for financial
services firms and advisors to comply, and a range of other
things.
We feel confident based upon what the DOL has said publicly
that it has taken all of this input very seriously, and is
working on a final rule that will truly address those issues.
Mr. Pocan. Thank you. Let's hope those messages are heard,
because I think that is one of the concerns a lot of people
have is the final rule is going to be the final rule. We want
to know that various inputs are heard.
I want to follow up on Mr. Walberg's question. I have to
admit that it stuck in my craw that someone was saying, ``go to
this website,'' and I will not say the website they mentioned,
but they actually suggested a website, and I went to it. I
answered eight questions about my willingness to lose money.
That is all they asked. I was a 5.5 out of 10, so I guess I am
more of a blackjack player than craps or slot machine player.
That is not something that most people are going to be able
to use, as you said, a very small percent of people. My mother,
we got her an iPad. She thinks it is a device to play Yahtzee.
Again, a question on that specifically, because I thought
that was one of the worst answers the Department gave. That is
not an alternative, so what potentially can we offer to this
personal advice and service question that is out there to make
sure that everyone still has access to be able to get that
personalized advice?
If I want to retire at 62, if I want to have a second home,
those are questions that when I did it on the computer, they do
not answer, and then I called them up, and they still do not
answer because that is not part of their model. You need to
have that in place. If you could just address that.
Ms. Mohrman-Gillis. Sure. Certainly, as certified financial
planners, we believe that consumers and small businesses across
the country need financial advice. We fundamentally disagree
that the DOL rule as written and as we expect it is going to be
tweaked and modified, will constrain that advice, will prevent
that advice.
I think it is really important to continue to understand
that the DOL rule allows for advisors to provide advice and
receive commission compensation. The only thing they have to do
is put in place policies and procedures to mitigate the
conflicts that are inherent in commission--
Mr. Pocan. If I can just reclaim because I have about 20
seconds left. I hope they are hearing you, and I hope they are
hearing us, because my concern is that if these are not
addressed and we have a final rule, the fact that they offered
that website as an answer implicitly suggests that is where
people will be driven to potentially out of the rule, and to
me, that is unacceptable.
I hope they are listening to you and others as we look at
how to tweak the rule and make it better, especially for low
income and moderate income investors.
Thank you, Mr. Chairman. I yield back.
Chairman Roe. I thank the gentleman for yielding. Mr.
Guthrie, you are recognized for five minutes.
Mr. Guthrie. Thank you very much. I hope the comments are
listened to, reacted to. I just have to be honest. I have been
working on this for a while. There are certain things
specifically that I was able to work with the Secretary and
Department of Labor on, and they did listen and they did react.
I have to say that first before I get into my questions because
that was a positive experience and I really appreciated that.
However, there are still concerns moving forward. Dr. Foxx
talked about hearing a lot from her District, and I have had a
lot of people come to me that are in the industry. Also, I hear
more from people about Dodd-Frank and the financial service
than any other issue going forward, and it gets to you. You do
things here and you pass them out, and they sound simple, and
you can walk through it on a piece of paper and it makes sense,
but you have all these people, particularly in the Second
District of Kentucky, and small banks, just trying to react,
trying to figure out how to make this work. It sounds so simple
when you are talking about it here, but it is so difficult when
you have lawyers say well, it could be interpreted this way so
you better protect yourself this way, that way, or the other.
My concern here is not just that we can read it and say
here are the comments, we can react to it, and this is all
going to work. It is how it is really implemented. I have heard
people say that the industry is just going to adapt to it and
figure this out. I will tell you that is happening in Dodd-
Frank, we are losing small banks.
Mr. Gaudreau, what do you think of that, that comment, the
industry is going to adapt to it, we are going to make this
all--
Mr. Gaudreau. Frankly, anyone who says that could not
possibly be part of this industry and make such an assertion.
Discussion around retirement, retirement plans and retirement
products, and strategies is a core focus for most financial
advisors in your districts.
This will decimate the field for us, drive many out of our
profession, make it difficult to attract new advisors, young
advisors, particularly in diverse communities, to come into our
profession, and thus dramatically reduce access for moderate
income Americans to qualified financial advice, the very people
who need it the most.
The affluent and their advisors who pay fees for service,
family CFOs and all this stuff, they will adapt fine. They
always do. The middle-income American will not have access to
financial advice, and in the long reaches of time, when we look
back to those people who are left in the shadows, how do we
care for them? A government of finite resources, how will we
care for them?
We need to encourage them to take charge of their own
retirement security, and it is personal financial advisors that
do that.
Mr. Guthrie. Another thing, the proposal as drafted has
eight months, it will be implemented in eight months. What
about that time frame?
Mr. Gaudreau. It is absolutely unworkable. Instead of
adapting, what is going to happen is major financial
institutions are going to restrict their advisors from being
able to engage in new client relationships unless those
accounts are large enough to essentially cover this cascading
fiduciary liability that is going to broker-dealers, insurance
companies, banks, and other providers of financial products.
They are going to just stop, I think, and say ``let's just
figure out the strategic issues here involved so we do not
incur all kinds of fiduciary liability as institutions
ourselves.'' That means even if we wanted to do pro-bono work,
we might not be able to do that.
Mr. Guthrie. Ms. Doba, setting up a small business
retirement plan, could you discuss some of the practice
challenges you are facing when you go through setting up a plan
for a small business?
Ms. Doba. Well, when I went through it--
Mr. Guthrie. How did your advisor help you, I guess is the
question I am getting at.
Ms. Doba. As I kind of alluded to earlier, when I was
starting a company and going through all that, and especially
as an engineer, we have a lot of regulations. I am a woman-
owned firm. I am a disadvantaged business enterprise. I have
all kinds of certifications and enough requirements that I have
to fill out on a daily basis. I do not do engineering anymore,
by the way, I push papers.
I found that you are so busy dealing with all of that and
you are stressed out mentally, financially, time wise, that if
it were not for an advisor, I was just going to push off and
probably not do a 401(k), had I not had a trusted advisor that
I could speak to and trust that he could field and deal with a
lot of my non-responsiveness on matters because I had urgent
issues to handle, it would not have happened, frankly.
Now that I am in the position I am in, I am very fortunate
that I had that advice, and so are my employees because while
we are a diverse company, most of our employees are
millennials. With every generation, we need to be saving money.
This rule is going to discourage some of them, I guarantee that
they would have not, had there been more hurdles to go through,
participated in our plan. We may not have had a plan.
Mr. Guthrie. Thanks. Before I get to my last question, I
will probably get gaveled down. I would just emphasize, I know
the comment period is going forward, and I know the experience
I have had with the Department of Labor moving forward does
make this very workable.
I am not going to get my question in, but thank you so
much, and I appreciate it. I yield back.
Chairman Roe. I thank the gentleman for yielding. Mr.
Sablan, you are recognized for five minutes.
Mr. Sablan. Thank you very much, Mr. Chairman. Thank you
for holding this hearing. Ms. Gillis, good morning. Consumers
right now go out and face the marketplace. Here in the 48
states, there are many advisors, many individuals who are
licensed and authorized to provide advice and to manage money,
but where I come from, besides the banks, I think there is only
one. We have a limited number of individuals who do provide
advice or who handle money.
Still, you testified and your written testimony stated that
consumers in the marketplace sometimes have difficulty in
distinguishing the advisors, those who provide fiduciary advice
and those who do not.
Let me just make an example, you come to this committee
expecting to testify and to tell the truth. The committee still
requires you to raise your right hand and make that oath. Is
this not what the DOL is proposing to do, while we trust you, I
trust you as an advisor, I still want to verify, you know, some
famous president made the trust, verify, why are people
objecting to this when we are requiring an advisor would sign
with his signature on a piece of paper and say I will provide
you with--serve your best interests as a consumer.
Ms. Mohrman-Gillis. I think that is an excellent question.
Witness after witness testified before the Department of Labor
that they believed in the best interest standard, and yet when
they were asked by Labor officials whether or not they would
obligate themselves in a written contract to provide best
interest service, witness after witness said no.
It sort of defies credibility, and I keep wondering why
opponents to this rule are spending millions and millions of
dollars with armies of lawyers and public relations
specialists--
Mr. Sablan. At least some of them, yes.
Ms. Mohrman-Gillis. With commercials, arguing against this,
if they really do agree with and want to comply with--
Mr. Sablan. I do not mean to interrupt, but they are saying
they will do so but they will not sign the piece of paper?
Ms. Mohrman-Gillis. Correct.
Mr. Sablan. That requires them to do so.
Ms. Mohrman-Gillis. Correct.
Mr. Sablan. I am from the islands, so I do not know too
much about money. Why will they not put their name on a piece
of paper that they say they do anyway?
Ms. Mohrman-Gillis. Well, I think that is the fundamental
problem here. The Department of Labor basically has a common
sense rule to update its definition of ``fiduciary'' to
essentially have an enforceable obligation to provide advice in
the best interest of the client, and that is what is at issue
here.
It is being strenuously oppoposed by industry
organizations. Our experience over eight years of basically
overseeing a fiduciary obligation of CFP professionals says
that it will not diminish services, it can be done, it can be
done under the types of requirements that are very simple
requirements in the Department of Labor rule.
Mr. Sablan. To be clear on this confusion, my confusion
actually. I am probably Billy Joel. I do not know how to handle
money. My wife does.
Ms. Mohrman-Gillis. And most consumers do not know.
Mr. Sablan. They have a choice between what they call
wealth managers, I think, in banks.
Ms. Mohrman-Gillis. Right.
Mr. Sablan. Or this one individual who I personally know, I
will still require him to sign a piece of paper that tells me
he serves in my best interest, and he is someone I know.
Ms. Mohrman-Gillis. Consumers today in today's marketplace
have no ability to determine whether or not their advisor is
required by law to be a fiduciary or not. We have a fragmented
regulatory structure that allows people to call themselves
``advisors,'' and one group of advisors is only required to
provide advice that is suitable and can provide advice
essentially that is in their own best interest as opposed to
the client's best interest.
Mr. Sablan. They are simple.
Ms. Mohrman-Gillis. And another that is required. What the
DOL is saying essentially is that for tax preferred retirement
savings, we need to really enforce what Congress put in place
in 1974, which said for these savings, we need to have
fiduciary level advice.
Mr. Campbell. May I reply?
Chairman Roe. The gentleman's time has expired. Mr. Carter,
you are recognized for five minutes.
Mr. Carter. Thank you, Mr. Chairman. Mr. Campbell, do you
want to respond? Go ahead.
Mr. Campbell. If I may, I think there was some
mischaracterization of what actually occurred at those
hearings, at which I also testified.
Witness after witness was not saying no, we will not sign a
paper that says we will act in the best interest of our
clients. They were all prepared to do that.
What they were saying is we will not sign this best
interest contract exemption as proposed, which offers unlimited
class action liability in states under state contract law,
which is an issue no one has ever introduced in this space
before and has an unknown amount of liability and risk
associated with it, that will make disclosures that no one can
currently make.
They do not gather the data in a way yet to make
disclosures as required by that exemption, and cannot do it in
eight months.
There is a big difference between saying yes, we will abide
by your best interest, and we will sign a document to do that.
The debate is: what does the document say, what are the
obligations that go along with it?
I think it is very over simplified to suggest that all the
Department is doing is saying you should act in your best
interest. Quite the opposite. The Department is laying down
very specific onerous difficult to comply with requirements
that do not mesh necessarily with your best interest.
Mr. Carter. Right. Thank you, Mr. Campbell. Ms. Doba, you
are a small business owner. I am a small business owner, too.
In fact, five days ago, I am proud to announce, that we started
our 28th year in business, started that business when I was
five-years-old. It is amazing.
Nevertheless, the point I want to make is the relationships
between my employees, I have had employees who have been with
me the whole time, and they are like family to me, very
important. I want to take care of them. I want to take care of
their retirement. When they leave my business, when they decide
to retire, I want them to leave with a nest egg and be able to
say I am sure glad I worked there, that gave me the cushion,
the nest egg, that I needed for my retirement.
When I set up that retirement account, when I set up that
401(k), it was simple. Just went and set it up with someone I
knew, I was associated with, and they took care of it.
If these new rules were in effect now, would you find that
more difficult today to set up a plan such as this?
Ms. Doba. Absolutely. As I stated before, I probably would
not have set one up if these rules were in place at the time.
It is a family. It really is a family. I have to tell you, I
share with my employees about our benefits, what is coming up
in policy, changes that may affect us as a company, and our
employees even have stated their concern about this rule.
I think it is very concerning, like I said. Your first
question, where you were talking about--I apologize--at the
very beginning.
Mr. Carter. I just want to know how difficult it is if
these rules were in effect, and you have answered it.
Ms. Doba. Yes.
Mr. Carter. To set up this plan. I think this would without
question deter our small businesses--
Ms. Doba. Yes.
Mr. Carter. From setting up plans like this that are so
essential to us. Ms. Mohrman-Gillis, out of all due respect,
you say well, if you had a contract, that would make all the
difference in the world. Would it really make a lot of
difference in the world? Someone who wants to be a bad actor is
going to be a bad actor. That is going to happen.
I can tell you throughout the 28 years that we have this
retirement plan in my business, I have taken risks in it, and I
have lost some, but I have also gained quite a bit. I
understand that.
I do not see where signing a contract is going to make that
big of a difference. In fact, I do not see where it is going to
make any difference at all except to deter people, deter
businesses from wanting to start these programs, so I beg to
differ with you on that.
Ms. Mohrman-Gillis. If I might respond.
Mr. Carter. You may.
Ms. Mohrman-Gillis. I think signing a contract is really to
ensure that financial services firms who say they agree with
the best interest standard actually put in place policies and
procedures that stand behind that best interest standard.
Right now, we have a structure that allows firms to create
compensation incentives for their advisors that basically
prompt advisors to sell products or to provide services that
are not in the best interest of the client but rather that are
in the best interest of the advisors. So, it is more of a way
to make sure that obligation--
Mr. Carter. I understand. My time is running out so I want
to be quick. Mr. Gaudreau, you sell retirement plans to small
businesses. What do you think?
Mr. Gaudreau. If it was just a piece of paper saying we
will work in the best interest of our clients, we would not
even be here today. It is the details. This imposes a very,
very large rubric of additional regulation that will be very
costly, time consuming, resource intensive for advisors, and it
is going to make it impossible for them to deal with small
businesses and small and middle income investors.
Mr. Carter. Do you think for small businesses, it is going
to deter them from offering these programs?
Mr. Gaudreau. Absolutely, to be the catalyst for the
beginning--
Mr. Carter. Thank you, Mr. Chairman.
Chairman Roe. Ms. Bonamici, you are recognized for five
minutes.
Ms. Bonamici. Thank you very much, Mr. Chairman. First, I
want to thank you all of you for being here today.
I want to follow up on Mr. Scott's question. There has been
a lot of discussion about this rule in the subcommittee today
and really over the past several months.
As we know, there was a rule that was proposed in April,
numerous requests came in to extend the comment period. That
was done, and then after the extended comment period, there
were four days of public hearings with an additional comment
period.
And then a few months ago Secretary Perez testified before
our committee, along with a panel from the industry. Secretary
Perez expressed his openness to addressing the concerns that
were raised. In fact, Mr. Guthrie acknowledged that the
Department of Labor has been receptive about input. I am a
little bit concerned because most of the testimony today sounds
like it is based on the rule that was proposed in April, which
I do not think anybody is saying will be the final rule.
I really want to get that out in the front. This is a
critical issue. It reminds me I have a consumer protection
background. I used to do consumer protection work at the
Federal Trade Commission. It reminds me of some of the issues
that I have been through over the years, for example, in the
mortgage industry, when consumers would trust their mortgage
broker. There is a disparity of knowledge and bargaining power,
and they would trust they were getting the best advice
possible. As we know, that did not happen in that industry.
I have met with families and individuals across Oregon, the
state I am honored to represent, a district there. People are
struggling to get ahead. Retirement security is a big issue. I
know the sacrifice that is involved in every dollar they set
aside to contribute to their future retirement.
My parents are in their late 80s. I am going through this
personally.
The retirement landscape has dramatically changed in the
last 40 years. When the initial fiduciary rule was implemented,
a majority of retirement assets were in defined benefit plans,
employer based 401(k)s did not exist, and IRAs were just
created. We are really in a different world now.
Ms. Mohrman-Gillis, now that consumers have more
responsibility than ever, and it seems like less education
about personal finances, and I have been a long-time advocate
for more personal financial education, it makes sense providing
products that are in the best interest should always be a top
priority.
In a hearing this committee held on this rule last summer,
all of the panelists agreed that consumers should receive
advice that is in their best interest.
Here is the question I ask the industry panel: ``Just to be
clear, does everyone agree that the best interest standard
means a best interest fiduciary standard?'' One industry person
said yes, and the others nodded affirmatively, and bad me did
not get them to answer orally. They all nodded affirmatively.
Can you please speak about why there might be opposition
when it seems like the industry agrees they should be doing
this, they should be acting in the best interest fiduciary
standard.
Can you address that issue and why do you think there is so
much opposition, and talk a little bit about what you are
expecting to see later on when the final rule is actually
proposed. There is a lot of speculation going on here today.
Ms. Mohrman-Gillis. There is a lot of speculation. I think
we come to the table with experience of working under a
fiduciary standard that is very similar to the BIC exemption
requirements that are in the proposed DOL rule.
We have full confidence that based on everything that DOL
has said, it has taken all the input and is going to come out
with a more streamlined rule, one that is going to be more
applicable across business models.
In terms of the best interest standard, that is an
excellent question because I do think it means different things
to different people. The principles that were discussed today
and are a part of this hearing really fail to meet the true
best interest standard in at least two ways.
Number one, the best interest standard does not include the
component that the best interest of the customer without regard
to the financial or other interest of the advisor. That is not
included in the principles. Also, the principles talk about
disclosure, disclosure alone is not a best interest standard.
You need to disclose conflicts of interest but you also need to
either eliminate them or manage them in a way to mitigate the
conflicts of interest.
Those two components are part of the Department of Labor
rule, part of our code of professional conduct, part of what we
have been doing for the past eight years, and I can tell you
based on our experience that it is workable and that as you
made the point----
Ms. Bonamici. I do not mean to cut you off. My time is
about to expire. I just want to make this point, which is the
same point I made in the hearing earlier this summer. I just
came from the Science Committee, which is why I was not here
for your testimony, but I did read your testimony.
When industry agrees and we all have the same goal, this is
not rocket science, we should be able to work this out, and I
really get the sense that the Secretary is listening, the
Department of Labor is listening to the concerns that have been
raised, we should be able to get this worked out in a way that
as you said, Ms. Mohrman-Gillis, what has worked in your
industry, it should be able to be done, and I have confidence
it will.
Thank you, and I yield back the balance.
Chairman Roe. Thank the gentlelady for yielding. Mr. Allen,
you are next, five minutes.
Mr. Allen. Thank you, Mr. Chairman, and thank you for this
hearing. Thank you for testifying.
This is obviously an important hearing because we have a
huge disconnect that is obvious here between Government and
private industry, and how you deal with certain issues.
I am from a small business community, so I think I should
probably disclose that. I did start, in our company, a 401(k)
plan and encouraged our employees to participate. I am proud to
say our company has been able to maximize its contribution to
that plan for 42 years, except for one year.
I will tell you after participating in these hearings, I
did give some investment advice to my employees back in 2008,
which I wonder if, Ms. Doba, you might comment, do you ever
have your folks come in and ask you maybe what we should do.
Our folks basically said do we stay in or get out, because
the market dropped substantially. Of course, I got the best
investment advice that I knew to get, and I said they all say
it is going to come back, I think we need to hang in there and
see what happens.
I wonder what my liability would be as a small business
owner just having conversations with our folks. Every year,
things had gone very well and then all of a sudden, they are
losing huge amounts of money, and they are very concerned about
it. That will tell you a little bit about the risk that you
have as far as being a financial advisor.
What I see here, and Secretary Campbell, the one thing that
I do not quite understand is there is this disconnect. In your
opinion, has the Secretary of Labor consulted the investment
industry about this problem and said how do we solve this the
right way?
Mr. Campbell. Well, I am not sure exactly how much he
reached out to them versus them coming to him. In any event,
there have certainly been a large number of discussions and
there has been a comment period.
The problem we have is that says nothing about what changes
DOL will actually adopt, whether it actually agrees with the
concerns that the industry has laid out, and what the final
rule might look like.
We had a comment period, and it was extended, and we had
some public hearings. There were lots of comments made, but
whether the comment period is 90 days or 140 days, it is one
comment period on this same thing. We have no idea how DOL is
going to resolve at least 40 or 50 major issues, and we have
not gotten into even half of those today.
The scope of this rule that the Department has proposed is
so far beyond anything this portion of the Labor Department has
proposed in the past, that it really is an unimaginably
difficult task for them to go through the process, hear those
comments, come out with a rule, and do it on the time frame
they are looking at, which is essentially an one year time
frame, to go from proposal to final.
Mr. Allen. You have worked in the Government sector and now
you are an attorney?
Mr. Campbell. Yes, sir.
Mr. Allen. You have seen both sides of it. Why do we hear
from you and then we hear from Ms. Mohrman-Gillis about well,
this is no big deal, this is just something the industry is
going to adapt to, and then we are hearing from the
professionals that my goodness, this could turn the whole thing
upside down, I mean what is going on here?
Mr. Campbell. I think it is a couple of things. One, you
have the DOL proposal out there, so folks who want to see
change in this area naturally gravitate towards the proposal
despite its warts.
Those of us who are looking at how we want to actually
comply in the real world with this, and this was a discussion I
had with the Department when I testified at the administrative
hearings, their intentions, their ideas, their themes, are one
thing, but we have to actually comply with the letter of the
law, with the regulation as it is written. As it was written in
the proposal, we cannot figure out how to comply with it. It
has too many technical problems.
I think part of the disconnect is Ms. Mohrman-Gillis has
been saying we have been able to adhere to a fiduciary
standard, why not the rest of you, my point is what DOL
proposed is not the same fiduciary standard you adhere to. It
is much beyond that with many other problems, and how those
technical issues are resolved is really the crux of this, the
details matter.
Mr. Allen. That is what we are hearing. Ms. Doba, when you
picked your investment advisor, did you just pick him out of
the Yellow Pages and call him up and say hey, can you help me
with my 401(k) plan, or did you do a little checking on him as
far as experience and success as far as dealing with those
types of issues?
Ms. Doba. I did checking on him, but he is also, like many
small businesses, a family friend. When I have asked him
advice, he is very cautious about what advice he will give. He
will help guide me in me determining my risk assessments, but
will not tell me you need to be in this particular fund. He
will be like here is what is available to you out there.
I have asked him about should I be in a ROTH or a
traditional 401(k). He will not give me that answer. He is like
it is up to you, let's assess your risk.
Mr. Allen. He may not--
Chairman Roe. The gentleman's time has expired.
Mr. Allen. I yield back.
Chairman Roe. Mr. Messer, you are recognized for five
minutes.
Mr. Messer. Thank you, Mr. Chairman. You know, throughout
this debate, I made the point that in life and in public
policy, we are not only accountable for our intentions, we are
also accountable for your results.
In this debate, we all want to see investors get good,
sound advice. The real debate here is about what will the
consequences, the results of these decisions be, and if we
bring forward policies that actually end up hurting the very
people that we are saying we are trying to protect, that does
not make sense for anybody.
Ms. Doba, I appreciate having a good common sense Hoosier
here, and appreciate your testimony already about what you
believe the results of the fiduciary rule as put forward would
be for your business if it did not change.
I thought one of the strong insights of your testimony was
the fact that as a small business owner, you are a consumer
every day.
Ms. Doba. Yes.
Mr. Messer. That you have to discern between selling and
advice in all kinds of areas, including investment advice.
Could you just expand a little bit upon why you believe that
some of the fiduciary rule exceptions that would apply to
businesses, apply to larger businesses ought to apply to
smaller businesses as well?
Ms. Doba. Very good question. That is where one of my big
crux is with this, why is a small business being the one that
is affected by this so severely. I actually take exception to
the fact that it is assuming that as a small business, I am not
as sophisticated as large businesses, when in fact, I feel like
a small business has a much better relationship with its
employees. I am much impacted by how well they are benefitting,
their livelihood, their family life is going. There is not that
cushion as much as a large business has.
I think we can all recognize the fact that large businesses
have not always been successful themselves either, if you watch
the news.
As a small business, I just am really struggling, and I
still have not been able to get a straightforward answer as to
why small businesses are being so targeted and affected by
this.
Mr. Messer. Why do you need to be protected from yourself?
I appreciate your testimony.
Ms. Mohrman-Gillis, let me ask you a slightly different
question. You represent a broad cross section of CFPs, right?
Financial planners. I just wanted to ask you, you mentioned you
believe industry would adapt. Do the folks you represent have--
what are their account minimums for--
Ms. Mohrman-Gillis. CFP professionals that serve clients
all across the board. Many serve very small and middle class
clients.
Mr. Messer. What would be the minimum?
Ms. Mohrman-Gillis. We have thousands of CFP professionals
across the country who have either no or very low minimum
assets under management----
Mr. Messer. Let me ask you, do you believe----
Ms. Mohrman-Gillis. Or provide commission based services.
Mr. Messer. Thank you. Do you believe under this rule that
some of their account minimums might go up if the fiduciary
rule is put forward?
Ms. Mohrman-Gillis. We believe that under this rule, not
only believe, but we know based upon our experience with CFP
professionals who are already operating under BIC like
requirements, that they are providing services on a commission
basis----
Mr. Messer. Do you believe--I am asking you a specific
question--that their account minimums might go up under this
rule? That some of the folks you represent might raise the
account minimum of who they are willing to serve?
Ms. Mohrman-Gillis. We have Ray Ferrara who testified
before the DOL. He is going to continue----
Mr. Messer. I take that to be no. It is a very simple
question. Do you think their account minimums will go up or
not?
Ms. Mohrman-Gillis. He basically said he is not--if he has
increased costs to put in place any of the requirements for the
DOL rule, he does not intend to pass those along to his
clients. The answer is no, not necessarily, that----
Mr. Messer. Thank you. Reclaiming my time, Mr. Gaudreau,
what do you think? Will account minimums go up again,
essentially the clientele that individuals are able to serve
will shift upward under this rule?
Mr. Gaudreau. Absolutely.
Mr. Messer. Could you in your answer expand on where that
has already happened in the real world?
Mr. Gaudreau. It is already happening in the real world
because right now broker-dealers, insurance companies, banks,
and a variety of other financial institutions, sort of
manufacturers of products, are already considering their own
cascading fiduciary liability, and the cost this will pass
along to them, the liability passed along to them. That is
forcing them to say you know, small accounts, it is just not
worth the institutional risk that we will have. It is the same
thing for their advisors.
The fact is the typical financial planner who is fee for
service will charge $1,000 to $2,500 before they will talk to
somebody period. The regular middle class American is not going
to write out a check to start talking about their finances.
We are a catalyst typically for businesses like Ms. Doba's
to buy financial products as well as pension plans and benefits
for their businesses.
If you provide us a way to make it possible to do so----
Mr. Messer. In reclaiming my time----
Chairman Roe. The gentleman's time has expired.
Mr. Messer. I would just make the point--we do not have to
imagine that, we can look to England and see that it has
happened there.
Chairman Roe. I thank the gentleman for yielding. Mr.
Grothman, you are recognized for five minutes.
Mr. Grothman. Okay. Mr. Campbell, just give me background
on this. Did the Small Business Administration analyze the rule
and provide comments to the Department as to the effect on
small business?
Mr. Campbell. It did, actually. The Small Business
Administration submitted--the Office of the Small Business
Advocacy at the SBA submitted a comment letter on the formal
process to the Department of Labor, which is relatively
unusual, actually, for federal agencies to issue formal comment
letters to one another.
They criticized the way the Department had taken into
account the effect on small businesses in the economic
analysis, and also provided the results of its own focus groups
talking to advisors and small business owners about what they
expected this would result in, and the results of that is they
expected their prices to go up and their access to investment
advice to go down.
Mr. Grothman. Okay, but apparently ignored so far.
Mr. Campbell. Again, that is part of the comment process.
We do not know yet how the Department is going to respond. We
have no more bites at the apple the way it currently sits. DOL
will come out with a final rule which we will see for the first
time and have to live with the first time we see it.
Mr. Grothman. Okay. A few months ago, Secretary Perez was
before this subcommittee, and he expressed concern about so-
called ``hidden fees'' as the reason for the proposed rule.
Could you describe what he meant by those hidden fees? Can you
take a shot?
Mr. Campbell. I am not entirely sure what he meant by
those. With respect to the 401(k) plans, the ERISA plans, there
is already very clear fee disclosure required by DOL
regulations that we actually initiated while I was running the
agency, disclosures from service providers to plans and
disclosures from plans to participants.
There are also, of course, a variety of disclosures
required by other laws that are applicable in the IRA space as
well, where you have securities law, insurance laws, a variety
of those disclosures.
I do not think the problem here is lack of disclosure. In
fact, I think most people are probably throwing away a lot of
disclosures they are getting because there is too much to even
begin to read.
Mr. Grothman. Okay. I will give you one more question, for
Ms. Doba. One more time, in this world, there are kind of
different rules for the small businesses and their employees
versus a large business. Can you just one more time kind of
wrap things up by summarizing what the effect of the difference
between big business and small business will have on small
business?
Ms. Doba. Sure, absolutely, I would be happy to. Small
businesses, like I said earlier, we are already perceived as
having the inability to provide great benefits to our
employees. We have that perception.
A lot of times we have higher costs, we have more
restrictions. Adding more potential fees coming our way to not
only ourselves but our employees affects us on hiring. In
engineering, we already have STEM issues on hiring. That has
nothing to do with this particular subject, but it is just one
other hurdle that we have to go through with fees that will
affect not only myself but our employees, and as a plan
participant myself.
Mr. Grothman. Okay. Thanks much.
Chairman Roe. Mr. Hinojosa, you are recognized for five
minutes.
Mr. Hinojosa. Thank you, Chairman Roe, and Ranking Member
Polis, for holding this important hearing, and I also want to
thank our panelists for testifying today. I apologize that I
came in apparently late, but I was at the Financial Services
Committee, and that went long.
I want to continue the line of questioning that has
occurred already. As we continue to debate the Department of
Labor's fiduciary rule, it is important to note that the
Department's expected fiduciary rule is necessary, long
overdue, and will help millions of Americans.
We must ensure that the principles regarding the DOL's
proposed fiduciary rule strike a balance in protecting the
individuals from misleading or possibly harmful advice while
also promoting robust access to information and personal
assistance regarding retirement investments.
My first question is directed to Ms. Mohrman-Gillis. As you
point out in your testimony, the retirement landscape has
changed in the past 40 years. It has now more self-directed,
and 401(k)s are the new normal. If consumers have more
responsibility than ever before for their own retirement,
should their best interest always be put first as required by
the Department of Labor by their rule?
This seems to make sense to me. Can you please speak to
that issue?
Ms. Mohrman-Gillis. Sure, and the answer is absolutely,
yes. I would also like to say advisors do not have to--
consumers do not have to pay fees in order to get advice under
the rule. Advisors can still provide commission based advice,
they just have to do it in the best interest of the client.
We have heard about the flood gate of litigation. That is
not our experience as CFP professionals who have been providing
fiduciary level advice over the last eight years, nor is it the
experience for the advisors who are providing fiduciary level
advice. In fact, research shows that for consumers who receive
fiduciary level advice, there is less likely there is going to
be litigation.
A number of folks have mentioned the U.K. situation. That
is apples to oranges to what the DOL rule is. The U.K. banned
commissions and put in place competency standards for their
advisors, and they are still having a favorable outcome to
that.
The DOL rule does not ban commissions and does not put in
place competency standards for advisors.
Absolutely, to your question, the retirement landscape has
changed dramatically, and now more than ever consumers need a
true fiduciary standard of care, particularly for tax preferred
retirement assets.
Mr. Hinojosa. Let me ask you a second question. I want to
ask you about access to advice, because this issue is
particularly important to me. I remember what happened in
January of 2008 when we went into a deep financial crisis, and
how the value of many of the employees' retirement funds took a
huge drop.
Ensuring that small savers have access to un-conflicted
investment advice is of paramount importance to me. Can you
tell me how a fiduciary duty can increase access to retirement
investment advice, and can you tell me the benefits from it?
Ms. Mohrman-Gillis. So, a fiduciary duty as you said will
increase access to un-conflicted investment advice, which is
critically important particularly for our small savers. They
need it more than anything.
Small savers, the most important decision they generally
make is whether to roll over a 401(k) into an IRA. They have
responsibility for that. The rollover market in today's
marketplace is a $300 billion a year market. It defies
credibility to think that firms and advisors will walk away
from a $300 billion a year rollover market just because they
are obligated to provide advice in the best interest of the
retirement saver.
Mr. Hinojosa. I did not realize that it was so large, $300
billion a year. What advice would you give us in Congress to be
able to find some workable compromise so that we can be fair to
employers?
Chairman Roe. Hang on to that thought. The gentleman's time
has expired. I now yield myself five minutes.
I have listened to this testimony now for hours, and I
always go back to my medical background, what is the chief
complaint. What are we trying to fix. Apparently, what we are
trying to fix is a problem, we roll this money over from a
401(k) to an IRA, people are getting conflicting advice, and it
is costing us all this money.
I looked at that formula that was used to calculate this
$17 billion. I can make that number any number that you want.
It was not a basis, in fact. It was a 1 percent yield more in
people who did not get this advice versus who did. The actual
number is 0.16 percent. It did not look into the cost of that
either. The number $17 billion is now going to become the Ten
Commandments. It is not. It is not a real number.
I also want to say that Bernie Madoff was a fiduciary also,
and a crook is a crook. If you have someone who is not looking
out for the best interest, whether it is a doctor, a lawyer, or
a financial advisor--Ms. Doba, you paralleled very much what we
did in our practice. We started with four doctors and 12
employees. We started with a pension plan with a person we knew
to come advise us how to do that.
We have employees that have been with us nearly 40 years
now who have many, many six figures in their retirement plan
because of what we had done. We have gotten big enough now we
can have a fiduciary and do have a fiduciary. We are large
enough to absorb that cost, and certainly in managed plans.
Let me give you a little number here and see if these
people are going to jump forward with all these regulations.
Let me just get a little of this off my chest.
When we talk about rules and regulations, I have dealt with
them for 40 years practicing medicine. The Affordable Care Act
now has 20,000 pages of rules. We spend more money in medical
administration now than we do on cancer and heart disease
treatment in this country. That is how expensive these rules
are.
When it is unknown, as the Secretary said, we do not know
what the costs are. I guarantee you that your client that said
he was not going to raise any of his fees is going to raise his
fees or he will go out of business because he has to pass the
cost on somewhere. I understand that. I totally get that.
Somebody has to pay the bill for this.
It is going to be a large bill when you comply with all
these rules and regulations. Ask a community bank. I walked
into a community bank the other day in Mountain City,
Tennessee. There are more compliance officers in that bank
after Dodd-Frank than there are loan officers. That is
ridiculous.
That is my fear here. I think what this is, is a solution
looking for a problem. Right now, what we have is a plethora of
people who are saving. We need to go out and find savers and
encourage people to retire. That is what we did.
To give you another little number here, the median
retirement account balance for all working age households is
$3,000. It is not the $50,000 that you brought up a minute ago.
Anybody would jump on a $50,000 account, 1 percent of that is
$500. One percent of $3,000 is $30.
We have to have lower-income folks. I saw this with people
I hired every day. I encouraged them. I begged them not to cash
out like Ms. Doba did their 401(k) and do anything because it
is very expensive when you look at the cost of money over time.
Mr. Gaudreau, I want you to walk us through in my last
little bit of time here about individuals that you have seen,
companies and individuals, that you have helped with your
business, obviously almost 100 years old.
Mr. Gaudreau. Yes. We are part of the fabric of our
community, like most of our members are across America, and
probably in your District, too, Mr. Chairman.
These decisions that consumers make in the financial realm
are based upon rapport and trust and relationship. These are
not just simple transactions. We have worked with the DOL,
tried to work with the DOL, to get this rule right, and there
are many stakeholders in this discussion, and I think we are
all better off and better served, including the consumer, if we
collaborate on a solution that adopts these principles.
We do not disagree that we should work in the best interest
of our clients. My family has been doing that for 100 years. As
a matter of fact, it is a little insulting to imply that we
ever have not. The fact is that we absolutely agree with that
and endorse that public policy.
This is an actual change of such magnitude, by unelected
regulators, and it is more than just a simple statement of
trust. It is a giant rubric of regulations that will be imposed
upon our industry and make it more and more difficult for the
regular Americans to get financial advice.
Chairman Roe. I thank you. My time has expired. I want to
thank you again, the witnesses, all of you. Quite frankly, you
are all here for the same purpose, which is to try to encourage
people to save for retirement. That, I applaud all of you for,
and thank you for taking your time to come and be with us. It
was excellent. Each of you had great points to make, and I
appreciate that. Appreciate you testifying before the
Subcommittee today, each and every one of you.
Mr. Polis, do you have any closing remarks?
Mr. Polis. I would like to join the chair in thanking our
witnesses for spending their morning with us. I think many of
us agree that a conflict of interest is important to address,
how to address that is, of course, being discussed. I am
hopeful we can move forward in a bipartisan and cooperative
manner.
As you know, very few Democrats support legislation that
would kill the rule, and I personally believe that is
counterproductive. What we are talking about, of course, is
specifics of the rule or specifics of legislation.
The Department of Labor does need to make changes and
communicate with stakeholders to ensure that middle and low
income individuals can continue to receive high quality, non-
conflicting financial advice.
What I have learned from my conversations with savers,
advisors, consumer protection advocates, and constituents, is
we should continue this productive, open process, which I
believe the Labor Secretary has been doing, which I also
believe would be strengthened with an additional comment
period, as long as it is consistent with the time frame of the
presidency and the tenure of the Labor Secretary.
When we disagree about how to solve a problem, we need to
sit down and hammer out a solution. I hope this hearing today
is very much seen in that light of furthering the open
stakeholder process that should complement the efforts of the
Secretary as we seek to finalize this rule, and I yield back.
Chairman Roe. I thank the gentleman for yielding. Again, I
want to offer my appreciation for all of you taking the time. I
know there is a lot of time and effort in preparing for these
hearings, and I thank you for doing that. You have been a great
panel.
I want to put into the record just the principles that we
have worked on for this rulemaking.
Promoting families and individuals' saving for a
financially secure retirement is an essential public policy
goal.
Retirement advisors must serve in their clients' best
interest and must be required to do so.
Retirement advisors must deliver clear, simple, and
relevant disclosure of material conflicts, including
compensation received, and all investment fees to individual's
savings or retirement.
Public policies must protect access to investment advice
and education for low and middle income workers and retirees.
Public policy should never deny individuals the financial
information they need to make informed decisions.
Investor choice and consumer access to all investment
services, such as proprietary products, commission based sales,
and guaranteed lifetime income, should be preserved in a way
that does not pick winners and losers.
Small business owners should have access to the financial
advice and products they need to establish and maintain
retirement plans and help workers save for retirement.
I think those are the principles that we need to go forward
on, and we need to put the brakes on this rule before we end up
with another mess that we have seen in multiple other things.
I have seen rulemaking put businesses under, and it was
never intended to do that from Congress. I have become very,
very weary when these agencies begin to issue rules that affect
how we actually do our jobs. I have seen it in medicine. It is
in the financial services, in banking, and so on.
Who ultimately pays the bills for those? Us, the consumers.
We ultimately get the bill.
Thank you all very much.
Mr. Polis. Mr. Chairman, I do have several documents to
submit for the record, along with the testimony that Ms.
Mohrman-Gillis mentioned in her answer to me, and this document
as well.
Chairman Roe. Without objection, so ordered.
[The information follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
Chairman Roe. With that, the meeting is adjourned.
[Additional submissions by Dr. Roe follows:]
[GRAPHICS NOT AVAILABLE IN TIFF FORMAT]
[Whereupon, at 11:58 a.m., the Subcommittee was adjourned.]
[all]